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Fix and Flip Loans — Lendia California

How Is the Loan Amount Calculated — Purchase Price vs. ARV?

Fix and flip lenders use two different values to determine how much they will lend: the current purchase price (or as-is value) and the after-repair value (ARV). Understanding both is essential for sizing your loan correctly.

Loan-to-Cost (LTC)

Loan-to-Cost is calculated as the total loan amount divided by the total project cost (purchase price plus renovation budget). Most fix and flip lenders will lend up to 85%–90% of total project cost, meaning you need to bring 10%–15% of total cost to closing.

Loan-to-ARV

Loan-to-ARV is calculated as the total loan amount divided by the after-repair value. Lenders cap the loan at typically 65%–75% of ARV — this is the backstop that protects the lender if the project goes wrong or the market softens.

Which Limit Applies?

Both limits apply — the lender uses whichever results in the lower loan amount. In practice, the ARV cap is often the binding constraint on larger or more ambitious renovation projects.

Example

Purchase price: $350,000. Renovation budget: $100,000. Total project cost: $450,000. ARV: $600,000.

85% of project cost = $382,500
70% of ARV = $420,000
Lender uses the lower = $382,500 max loan
Down payment needed: $450,000 − $382,500 = $67,500

Both Limits ApplyYour loan amount is capped by both LTC and LTV/ARV — whichever is lower. Run both calculations before you commit to a deal to understand how much cash you need to bring.

Which limit binds? Two more scenarios (illustrative examples, not quotes)

Item	Scenario A	Scenario B
Purchase price	$200,000	$500,000
Renovation	$30,000	$150,000
Total cost	$230,000	$650,000
ARV	$400,000	$700,000
85% of cost	$195,500	$552,500
70% of ARV	$280,000	$490,000
Maximum loan (lower)	$195,500	$490,000
Cash to bring	$34,500	$160,000

In A the cost limit controls because the deal has plenty of value margin. In B the ARV limit controls because the renovation is heavy relative to the finished value.

What a lower appraisal does

Go back to the example above on this page: $450,000 total cost and a $600,000 ARV. If the ARV appraises at $520,000, 70% is $364,000, which falls below the $382,500 cost-based limit. Your maximum loan drops by $18,500, and the cash you bring rises from $67,500 to $86,000 ($450,000 − $364,000). Testing a lower ARV before you make an offer shows you how much room the deal has.

Before you make an offer

Run both limits using the lender’s percentage ranges, not only the most generous end.
Add points, closing costs, interest and a contingency to your cash requirement.
Check that your ARV rests on completed comparable sales, not listings.

Setting your ARV conservatively

Use sold comparables, not active listings, and favor the lower end of the range if renovated homes nearby sold for different prices. If your deal only works at the highest comparable, treat that as a warning. A deal that still works at a lower ARV leaves room for the appraisal, the market and your own estimating errors.

Frequently asked questions

Is the renovation budget part of the loan?

In most structures, yes, held back for draws. The overall loan still has to fit within both the cost and ARV limits.

Which percentage will I actually get, 85% or 90%?

It depends on experience, credit, property and lender. Treat the upper end as a best case and plan for less when you size your cash.

Does the cash I bring include closing costs?

No. The down payment shown is only the gap between total cost and the loan. Points, fees, interest and reserves are in addition.