Bridge Loan LTV vs LTC: What Each Ratio Means (With a Worksheet)

What is LTC on a bridge loan?

LTC measures the loan against what you're spending.

LTC = Loan amount ÷ (Purchase price + Renovation budget)

Some lenders include certain closing costs in "cost" and some don't. Ask how your lender defines it. LTC works well for short-term deals because the cost is known on day one: it's in the contract and the budget.

Any maximum LTC a lender advertises is a ceiling. The leverage on your deal is set in underwriting. See Axelrad Capital's Bridge Loans page for current program terms.

What is LTV on a bridge loan?

LTV measures the loan against what the property is worth.

LTV = Loan amount ÷ Property value

On a renovation deal there are two values:

• As-is value: what the property is worth today.
• After-repair value (ARV): what it should be worth when the work is done.

Some lenders cap the loan at a percentage of ARV, and some look at as-is value at closing. On a bridge loan, ask which value applies and how it gets set.

Why do bridge lenders check both?

Each ratio guards against a different risk.

• LTC protects against overpaying for the project. If you pay too much for the property or the budget is inflated, the loan grows with your costs.
• LTV protects against value risk. If the property won't be worth enough to sell or refinance, a low-LTC loan can still be underwater.

When both apply, the stricter one usually limits the loan. That's why investors are sometimes surprised. A high advertised LTC doesn't mean that share of your costs if the value doesn't support it.

How do LTC and LTV relate to the exit?

On a refinance exit, the takeout loan (the long-term loan that pays off the bridge) is usually sized on value and rent, not on your costs. For example, Axelrad's Rental Loans page lists up to 85% LTV. If your bridge balance is higher than the takeout can lend against the new value, you'll need cash to close the refinance. Check the gap now. The worksheet below includes that line.

LTC / LTV worksheet

Total project cost is purchase price plus renovation budget plus any closing costs your lender counts. LTC is the loan divided by total cost, LTV is the loan divided by value, and the refinance shortfall is the bridge loan minus the takeout loan estimate (value times the takeout lender's maximum LTV).

If the refinance shortfall is positive, you'll need that cash, plus refinance closing costs, to exit. Rent coverage can also limit a rental takeout. Axelrad's DSCR rental loan checklist covers that calculation.

Example: running the worksheet (hypothetical)

Example for illustration only. Ratios are calculated from made-up numbers, not offered terms.

• Purchase price (A): $250,000
• Renovation budget (B): $50,000
• Closing costs included (C): $0
• Total cost (D): $300,000
• ARV (F): $400,000
• Requested loan (G): $270,000

LTC = $270,000 ÷ $300,000 = 90%. ARV LTV = $270,000 ÷ $400,000 = 67.5%. Investor cash into the project = $30,000, plus costs outside line D.

Now the exit check. Suppose the takeout lender's maximum for this property were 75% LTV (a made-up figure for the arithmetic). The takeout estimate would be $400,000 × 75% = $300,000. That covers the $270,000 bridge balance with room for refinance costs. If the property appraised at $340,000 instead, the same 75% gives $255,000. That's a $15,000 shortfall, before costs.

What should you ask a lender about LTC and LTV?

Ratios only mean something once you know how the lender defines the inputs. Before you compare two bridge quotes, ask each lender the same questions:

• Which costs count in "total cost": purchase price and rehab only, or also closing costs, interest reserves and fees?
• Is the renovation budget funded at closing, or held back and released in draws?
• Which value sets the maximum loan at closing: purchase price, as-is value or after-repair value?
• Who sets the value, and how? An appraisal, a broker opinion or the lender's own review?
• If the value comes in lower than expected, does the loan amount change or does the required cash to close go up?

Write the answers next to each quote. Two offers that both say "90%" can leave you bringing very different amounts of cash.

Common LTC/LTV mistakes

• Using ARV to justify leverage while the lender caps the loan on as-is value at closing.
• Forgetting that "cost" may not include closing and carrying costs.
• Assuming the takeout loan will lend the same percentage of value as the bridge did of cost.
• Not running the numbers again when the budget changes mid-project.

Key takeaways

• LTC = loan ÷ (purchase + rehab). LTV = loan ÷ value. The stricter result usually controls.
• Any advertised maximum LTC is a ceiling, not a promise.
• Ask which value (as-is or after-repair) your lender uses.
• On a refinance exit, check the takeout loan against the new value before you close the bridge.
• Run the worksheet again whenever the budget or value changes.

Check your numbers with a lender

Ran the worksheet? Send it with your application. Apply here, or review the program on the Bridge Loans page.