How Loan to Cost Affects Fix and Flip Loans

Loan-to-cost, commonly called LTC, is one of the important measurements investors encounter when evaluating fix and flip loans. LTC compares the amount being financed with the total project cost. For a renovation project, total cost generally includes the purchase price and planned renovation expenses.Consider a simple hypothetical example. If an investor purchases a property for $180,000 and expects to spend $45,000 on renovations, the total project cost would be $225,000. If a lender used an 80% LTC limit, the illustrative financing amount would be $180,000. The investor would need to provide the remaining capital, subject to the lender's actual requirements and the project's other financial considerations.LTC is not the only measurement a lender may use. The projected after-repair value, or ARV, can also influence how much financing a project can support. A property may have a reasonable purchase price and renovation budget but still require additional equity if its projected finished value does not support the requested loan amount. Borrower experience, credit profile, property condition, and exit strategy can also influence underwriting.InstaLend's published fix and flip program states that it can finance up to 95% of total project cost, while its maximum loan-to-cost ratio is 90%. The program covers 1–4 unit single-family residential properties and lists loan amounts from $50,000 to $5 million or more. A minimum FICO score of 660 and either a licensed general contractor or prior construction experience are also listed among the program requirements. These figures apply specifically to the published InstaLend program and should not be treated as universal lending standards. Every lender can establish its own limits and underwriting process. Investors considering fix and flip financing should calculate their total project cost carefully, estimate a realistic ARV, and understand how the requested loan fits within the lender's LTC requirements before committing to a property.