Financing

How hard money lenders calculate loan to value (LTV) on your deal

Hard money lenders use a specific method to calculate Loan to Value (LTV), which directly affects how much capital he or she will lend you. This calculation is a primary factor in the approval of your loan and the terms you receive.

October 15, 2026 · 4 min read

What is loan to value (LTV) for hard money?

Loan to Value (LTV) is the percentage of a property's value that a lender is willing to finance. For hard money lenders, this value is almost always based on the After Repair Value (ARV) of the property, not its current distressed state. This means the lender is looking at what the property will be worth once your renovation work is complete.

Understanding this distinction is critical because it dictates how much you can borrow. If you are calculating LTV based on the current purchase price, you will likely overestimate the loan amount a hard money lender will provide. Always focus on the ARV.

How hard money LTV differs from bank LTV

Traditional banks typically calculate LTV based on the current appraised value or purchase price of a property. They are lending against the immediate equity or existing market value. Hard money lenders, however, are in the business of financing future value.

He or she is primarily concerned with the property's potential after you have added value through rehabilitation. This forward-looking approach allows him or her to fund deals that conventional banks would not touch. It also means he or she will scrutinize your rehab plan and budget closely.

The importance of After Repair Value (ARV) in LTV

The ARV is the cornerstone of a hard money lender's LTV calculation. It represents the estimated market value of the property once all planned repairs and renovations are finished. Your lender will assess your proposed ARV to ensure it is realistic and supported by market data.

A common hard money LTV might be 70% of the ARV, but this can vary. Suppose you estimate an ARV of $200,000 for a property. A lender offering 70% LTV would lend you up to $140,000. This is not legal, tax or financial advice. Always consult with a professional.

What documentation do lenders use for ARV?

Lenders rely on various documents to verify your ARV projections. This includes a detailed scope of work for the repairs, a comprehensive budget, and comparable sales (comps) of recently sold, fully renovated properties in the immediate area. He or she will want to see comps that are truly comparable in size, bedrooms, baths, and finishes.

You should be prepared to provide at least three strong comps, ideally from the last six months. The lender will often conduct his or her own analysis or order an appraisal to confirm the ARV. Your comps should align closely with the lender's independent valuation.

How property condition affects LTV calculation

The current condition of the property, while not directly used in the ARV calculation, influences the lender's perception of risk and thus can indirectly affect the LTV he or she offers. A property in extremely poor condition might signal higher unexpected repair costs or a longer rehab timeline.

A lender might offer a slightly lower LTV on a very distressed property, or he or she might require a larger contingency fund in your budget. It is important to present a realistic and thorough assessment of the property's existing condition and your plan to address it. A detailed property inspection report can help.

Your experience and the LTV

While hard money lending is often more accessible than traditional bank financing, your experience as an investor plays a role in the terms you receive, including LTV. A seasoned investor with a proven track record of successful flips or rehabs may be offered more favorable LTVs or lower interest rates. A new investor might face more conservative terms as a risk mitigation strategy for the lender.

If you are new to investing, consider partnering with an experienced mentor or contractor to strengthen your proposal. Highlighting any relevant project management or construction experience can also help. The lender wants to see that you can execute the rehab plan efficiently.

Questions people ask

Does my credit score affect the LTV a hard money lender offers?

While hard money lenders are asset-based, your credit score can still influence the overall loan terms, including interest rate and points. A higher credit score often indicates a lower risk borrower, which might lead to better terms, but it does not directly change the LTV formula itself.

Can I get a higher LTV if I put more of my own cash into the deal?

LTV is calculated based on the ARV, not your cash injection. However, a significant cash down payment shows the lender your commitment and reduces his or her risk, which might make him or her more willing to negotiate on other terms, like interest rates or fees. It can also help if your initial capital is low.

What if the lender's ARV is lower than mine?

If the lender's ARV comes in lower than yours, you will need to either accept the lower loan amount, make up the difference with more cash, or try to negotiate by providing stronger, more recent comparable sales. Always be prepared to justify your ARV with solid data.