LTV (Loan-to-Value)
LTV is the loan amount divided by the property value, expressed as a percentage. It tells lenders how much risk they are carrying: a 75% LTV means the lender has financed 75 cents of every dollar of property value. The remaining 25% is the borrower's equity — the lender's cushion.
LTV governs interest rates, PMI requirements, refinance options, and — critically for BRRRR investors — how much equity you can pull out in a cash-out refinance.
The formula
Or equivalently:
| LTV | Equity | Context |
|---|---|---|
| 95% | 5% | Owner-occupied FHA minimum; rarely seen on investment property |
| 80% | 20% | Conventional owner-occupied; avoids PMI |
| 75% | 25% | Common maximum for investment property conventional loans |
| 70% | 30% | Cash-out refinance maximum for most investment lenders |
| 65% | 35% | Some DSCR loan products; hard money maximum on ARV |
Worked example: BRRRR refinance
This is where LTV is most consequential for investors. The goal: pull out as much invested capital as possible without exceeding the lender's LTV limit.
| Phase | Details |
|---|---|
| Purchase price | $130,000 |
| Rehab cost | $45,000 |
| Total invested | $175,000 |
| ARV (post-renovation appraised value) | $230,000 |
Refinance at 70% LTV (typical for investment cash-out):
| Item | Calculation | Amount |
|---|---|---|
| New loan | $230,000 × 0.70 | $161,000 |
| Cash out (pays back hard money) | $161,000 − original $97,500 balance | $63,500 |
| Capital still in deal | $175,000 − $161,000 | $14,000 |
| Effective LTV | $161,000 ÷ $230,000 | 70% |
The investor recovers $63,500 of the $175,000 invested, leaving $14,000 in the deal. Not an "infinite return" deal, but a solid capital-recycling outcome. At 75% LTV, the new loan would be $172,500 — recovering $14,000 more.
LTV by loan type and situation
| Loan type | Max LTV | Notes |
|---|---|---|
| Conventional investment (purchase) | 80% | Minimum 20% down; some lenders 25% |
| Conventional investment (rate/term refi) | 75–80% | Depends on lender |
| Conventional investment (cash-out refi) | 70–75% | Maximum cash-out on non-owner-occupied |
| DSCR loan | 70–80% | Varies by lender and DSCR |
| Hard money (purchase) | 65–80% of purchase | Asset-based underwriting |
| Hard money (ARV-based) | 65–75% of ARV | Limits total loan to % of post-reno value |
| FHA (owner-occupied) | 96.5% | Investment property not eligible |
LTV vs. LTARV (Loan-to-After-Repair-Value)
Hard money lenders use two LTV calculations simultaneously:
| Metric | Formula | Purpose |
|---|---|---|
| LTV | Loan ÷ current value | Measures today's risk |
| LTARV | Loan ÷ ARV | Measures risk at completion |
A lender that caps at 75% LTV and 65% LTARV applies both limits — whichever produces the lower loan amount controls.
How LTV affects interest rate
Higher LTV = more risk for the lender = higher rate (or stricter terms):
| LTV | Impact on conventional investment rate |
|---|---|
| 65% | Lowest rate tier; lender most comfortable |
| 75% | Standard investment rate |
| 80% | Rate premium; some lenders add 0.25–0.5% |
| 85%+ | Not available for investment property on most conventional products |
Common mistakes
1. Assuming the lender's LTV cap is based on your purchase price. For refinances and hard money, LTV is based on the appraised value — which may differ from what you paid. A property purchased at a discount may refinance at a higher appraised value (good for BRRRR), or an overpriced property may appraise below contract price (bad for purchase financing).
2. Not accounting for LTV in BRRRR exit planning before you buy. The refinance LTV determines how much capital you can recover. Model the refinance before you purchase — not after.
3. Confusing purchase LTV with refinance LTV. Some lenders apply different maximum LTVs for purchase vs. refinance. A lender might allow 80% on purchase but only 70% on cash-out refinance.
Frequently asked questions
What is a good LTV for a rental property? For purchase, 75–80% (20–25% down) is standard. For a BRRRR cash-out refinance, you want your new loan to be ≤ 70% of ARV to meet most lender requirements and leave a meaningful equity cushion.
Does LTV affect my mortgage payment? The loan amount directly determines the mortgage payment. Higher LTV = larger loan = higher payment = lower cash flow. A 5% difference in LTV on a $200,000 property is $10,000 less equity — and roughly $67/month more in mortgage payments at 7%.
What is combined LTV (CLTV)? CLTV includes all liens on the property (first mortgage + HELOC + second mortgage). Lenders use CLTV to evaluate total debt against value. Important if you have multiple loans on the same property.
LTV guidelines vary by lender, loan product, and market. Always confirm terms with your specific lender. This is not financial advice.