Editor's Note - Updated July 2026: This post has been updated to reflect current construction cost and home price data, add a Key Takeaways summary and FAQ section, and align with Kiavi's current content and compliance standards. The core LTV and LTC concepts remain consistent with the original post.
The LTV (loan-to-value) ratio measures how much of a property's appraised value a lender is financing, and it's the ratio most commonly used for purchasing or refinancing an existing property. Lenders calculate LTV by dividing the loan amount by the property's appraised value, then expressing the result as a percentage.
LTV = Loan Amount ÷ Appraised Value
A higher LTV ratio typically means a real estate investor is borrowing against a larger share of the property's value and contributing less equity upfront. This could increase the lender's risk, since less equity may mean less cushion if the property needs to be sold to recover the loan balance.
Example (hypothetical):
|
Item |
Amount |
|
Appraised value |
$350,000 |
|
Loan amount |
$262,500 |
|
LTV ratio |
75% |
Actual terms vary by lender, market, and deal specifics.
Maximum LTV ratios vary widely by loan type and lender risk tolerance, and a lower LTV could help a real estate investor access more competitive terms. The national median home sale price held steady at $360,000 in the first quarter of 2026, per ATTOM, meaning appraised values on many stabilized purchases and refinances have leveled off after several years of rapid appreciation. For a rental investor evaluating a refinance, that kind of price stability could make it easier to plan around a target LTV rather than underwrite against a moving appraisal.
Kiavi Tip: Ordering an appraisal early in the process could help a real estate investor confirm their expected LTV before committing to a purchase price or refinance target.
The LTC (loan-to-cost) ratio measures how much of a project's total cost a lender is financing, and it's typically the ratio most relevant to ground-up construction, major rehab, and fix-and-flip projects. Instead of comparing the loan amount to appraised value, LTC compares it to the full cost of acquiring and improving the property.
LTC = Loan Amount ÷ Total Project Cost
Total project cost typically includes the acquisition price plus hard costs (materials and labor), soft costs (permits, architectural fees, insurance), and a contingency reserve. Because LTC is tied to cost rather than value, it could be more sensitive to swings in construction pricing than LTV is.
Example (hypothetical):
|
Item |
Amount |
|
Land acquisition |
$120,000 |
|
Hard costs (construction) |
$380,000 |
|
Soft costs |
$50,000 |
|
Total project cost |
$550,000 |
|
Loan amount |
$440,000 |
|
LTC ratio |
80% |
Actual terms vary by lender, market, and deal specifics.
Rising input costs could push total project cost higher during the life of a build, which lowers the effective LTC on the same loan amount. Residential building material prices rose 3.7% in April 2026, the fastest pace in three years, per NAHB, and private residential construction spending reached a seasonally adjusted annual rate of $930.2 billion in May 2026, up 1.8% year-over-year, per the U.S. Census Bureau. For a real estate developer budgeting a new build, that kind of cost movement could make a fixed contingency reserve look thinner by the time a project reaches completion.
Fix-and-flip investors face a similar dynamic on rehab-heavy deals. Rehab costs typically run 20-33% of a property's after-repair value, per ATTOM, which means a scope of work that looks conservative at the offer stage could still move total project cost, and therefore LTC, once change orders and material costs are factored in.
Kiavi Tip: Building a 15-20% contingency into a construction or rehab budget could help preserve the target LTC even if material costs shift during the build.
LTV and LTC both measure leverage, but they use different denominators, which is why lenders apply them to different types of deals.
|
Ratio |
Compares Loan To |
Typically Used For |
Key Consideration |
|
LTV |
Appraised value |
Existing property purchases, refinances, DSCR rental loans |
Depends on a third-party appraisal |
|
LTC |
Total project cost |
Ground-up construction, major rehab, fix-and-flip |
Sensitive to material and labor cost changes |
The clearest distinction is timing. LTV relies on a property's current or projected value, which an appraiser typically establishes independently of what a real estate investor is spending to acquire or improve it. LTC relies on the investor's own cost basis, which means it typically moves as the project moves, not just as the market moves.
If a real estate investor is buying a property that already reflects its market value: LTV is typically the more relevant ratio, since there's a clear appraisal to measure against.
If a real estate investor is funding new construction or a scope of work that will significantly change the property: LTC is typically more relevant, since the appraised value won't reflect the finished product until the work is complete.
Which ratio applies typically depends on the deal type, not personal preference. A few common scenarios illustrate the pattern:
Rising acquisition costs could make this distinction matter more than it used to. Single-family rental yields declined in 54.8% of U.S. counties from 2025 to 2026 as record-high home prices raised acquisition costs, per ATTOM. For a rental investor evaluating an LTV-based purchase, that trend could mean underwriting a deal more conservatively on the value side, since the appraised value a lender is financing against may not translate into the cash flow it once did in the same market.
Kiavi Tip: Running the numbers under both an LTV lens and an LTC lens, even on a straightforward purchase, could surface financing options a real estate investor might otherwise overlook.
LTV and LTC determine how much a lender may finance, but several other factors typically shape the overall cost and structure of a real estate investment loan:
Technology-enabled underwriting has changed how quickly a real estate investor may get clarity on these factors. Rather than waiting on manual file review, data-driven lenders, like Kiavi, can typically assess LTV, LTC, and ARV together and return a financing estimate in minutes. Tools like Kiavi's ARV Estimator let a real estate investor model these numbers before submitting a full application, which could help narrow down financing options earlier in the deal evaluation process.
Understanding when to evaluate a deal by LTV versus LTC could help a real estate investor choose the right financing structure before an offer is even submitted. As a general pattern, LTV typically applies to stabilized purchases and refinances, while LTC typically applies to construction and major rehab projects, though many bridge loans weigh both alongside projected after-repair value. Real estate investors ready to see how these ratios apply to a specific deal can price out a deal in minutes.