How Hard Money Loans Are Sized: As-Is LTV, Loan-to-Cost, ARV and Draws
A term sheet that says "up to 90% of purchase" doesn't mean you'll get 90%. Hard money lenders size on several tests at once, and the most restrictive one sets your loan. If you know which one binds, you know your equity check before you write the offer.
The Three Leverage Tests
- As-is LTV: the initial advance against today's value, commonly around 70–90% of the purchase price or as-is value, whichever is lower.
- Loan-to-cost (LTC): total loan against purchase plus rehab budget, commonly up to around 85–90% for experienced borrowers and lower for first-timers.
- ARV cap: total loan against after-repair value, commonly around 65–75%.
Example: $400,000 purchase, $100,000 rehab, $650,000 ARV. At 90% LTC the loan could be $450,000, but a 70% ARV cap limits it to $455,000, and a 90% purchase advance limits the initial funding to $360,000. Here the LTC test binds. Change the ARV to $600,000 and the 70% cap ($420,000) binds instead, so you bring $30,000 more.
How Draws Really Work
- Rehab money is held back and released after the work is done and inspected, so you fund each phase first and get reimbursed.
- Expect an inspection fee per draw and a few business days from request to funding.
- Ask whether interest is charged on the full loan from day one (sometimes called "Dutch" interest) or only on the amount drawn. On a heavy rehab the difference is real money.
Your Full Cash to Close
- Down payment: purchase price minus the initial advance
- Origination points and lender fees, often deducted from proceeds
- Appraisal, title, escrow, insurance and recording
- Any interest reserve the lender requires
- Working cash to fund the first draw, plus a contingency for overruns
Plan on carrying interest, taxes, insurance and utilities monthly through the hold, too. See how they add up in Hard Money Loan Rates and Fees.
Related: Fix-and-Flip Loans in California · Extensions, Default and the Exit
Figures are typical ranges, not quotes; every loan is subject to underwriting and approval.
California Business Capital | Fresno, California | info@cabizfunding.com | 559-549-4717