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LTFC
What is LTFC in real estate?
LTFC stands for Loan-To-Full-Cost, and it represents your loan amount as a percentage of the total project cost. This metric helps both borrowers and lenders assess how much leverage is being used relative to the full investment required to complete a real estate project.
Total cost is the sum of:
- Purchase Price (what you paid or are paying for the property)
- Rehab Budget (estimated cost to renovate or improve the property)
- Sunk Costs (money already invested into the project prior to the current financing)
Private and hard money lenders may impose a maximum LTFC to reduce risk exposure, especially in projects with heavy rehab requirements. If your rehab budget exceeds your purchase price (a common scenario in distressed or value-add projects), the lender may be more conservative in how much they’re willing to fund.
Typical max LTFC thresholds range from 85% to 90%, depending on:
- Borrower experience (how many similar projects you’ve completed)
- Credit score and financial profile
- Project complexity and location
- Exit strategy (fix and flip vs. rental refinance)
A lower LTFC means the borrower is contributing more equity, which often results in better loan terms and a higher likelihood of loan approval.
How to calculate LTFC
The formula to calculate LTFC is Loan Amount ÷ Total Cost where Total Cost = Purchase Price + Rehab Budget + Sunk Cost (if applicable).
Example LTFC calculation:
- Purchase Price: $150,000
- Rehab Budget: $110,000
- Sunk Costs: $0
- Loan Amount: $234,000
- Total Cost: $260,000
- LTFC: $234,000 ÷ $260,000 = 90%
Rehab Budget
A rehab budget (also known as a "scope of work") outlines the projected renovation costs for your property. This breakdown allows lenders, appraisers, and investors to analyze the feasibility of the project and estimate the ARV, or After Repair Value.
Rehab budgets are critical for underwriting and are used to structure the disbursement of loan proceeds (often through draws as work is completed).
💡 Tip: A well-prepared rehab budget with realistic costs and clear contractor estimates can speed up loan approvals and reduce pushback from underwriters.
Example rehab budget
| Item | Cost | Comments |
|---|---|---|
| Permits | $2,500 | Based on county zoning office quote. |
| Plans | $1,000 | Modification of our standard 2,000 SqFt 3BR/2BA floorplan |
| Demolition | $2,500 | Complete demo to the studs throughout |
| Dumpster | $1,200 | 20-yard dumpster |
| Plumbing - rough in | $12,000 | Install PEX throughout, replace main water line and sewer tie-in |
| HVAC | $12,500 | Full system replacement, central air, heat pump |
| Electric | $11,000 | Rewire house, install panel and outlets, rough-in, fixture install and trim-out |
| Insulation | $5,000 | Mid-grade |
| Drywall | $10,000 | 7,000 SqFt |
| Flooring | $6,500 | LVP wide plank (9 in), 8 mm thick |
| Doors | $3,500 | 2 exterior, 12 interior |
| Trim | $2,500 | baseboards + door/window casing |
| Kitchen | $15,000 | Shaker cabinets, quartz countertops, stainless steel appliances, subway tile backsplash |
| Bathrooms | $2,500 | Rough-in, install, trim, tile flooring (cost of fixtures included below) |
| Painting | $5,000 | 7,000 SqFt |
| Fixtures - lighting | $1,500 | materials only (rough-in, fixture install and trim-out included in the Electric line item) |
| Fixtures - plumbing and bathroom | $3,000 | materials only (rough-in, fixture install and trim-out included in the Plumbing and Bathroom line items) |
| Masonry | $4,000 | Pavers, front walkway and rear patio |
| Driveway | $1,500 | Repair crack and seal |
| Landscaping | $3,000 | Yard cleanup and grading, seed, mulch, edging, fence repairs |
| Cleaning | $500 | Deep cleaning |
| Contingency | $10,000 | Buffer to be allocated if SOW revisions are required, unexpected items, cost overruns are incurred. |
| TOTAL | $115,700 | Estimated time to complete: 90 days |
Sunk Cost
Sunk cost refers to "mid construction" scenarios where the borrower purchased the property with cash or hard money, completed a portion of their scope of work and is now looking to refinance into a new fix and flip loan, hard money loan or bridge loan.
Sunk costs have already been spent on the project and imply that a portion of the borrower's scope of work (rehab budget) has already been completed.
💡 Tip: Keep organized documentation and receipts for all sunk costs. Photos of work completed can also support your case during underwriting.
Example sunk cost summary
Let’s say you purchased a property in cash last month, planning to fund the rehab with your own reserves. But shortly after starting the project, your marketing efforts generate a promising lead—and now you need to allocate a significant portion of your liquid capital to secure a new deal. To move quickly on this new opportunity and keep your current rehab on track, you decide to take out a fix and flip loan on the first property.
| Item | Cost | Comments |
|---|---|---|
| Permits | $2,500 | Based on county zoning office quote. |
| Plans | $1,000 | Modification of our standard 2,000 SqFt 3BR/2BA floorplan |
| Demolition | $2,500 | Complete demo to the studs throughout |
| Dumpster | $1,200 | 20-yard dumpster |
| TOTAL | $7,200 |
Why LTFC Matters
Understanding and calculating LTFC can make or break your deal. Here’s why it’s important:
- Borrower leverage: A high LTFC means you're putting in less cash—but it may be riskier and costlier in interest.
- Loan approval: Staying within a lender's LTFC limit increases the chance your loan gets approved.
- Risk management: For both lender and borrower, LTFC helps ensure the project is financially viable and sufficiently capitalized.
- Exit strategy alignment: If your exit is a BRRRR or flip, LTFC can help forecast profitability and liquidity requirements.
How to get a Fix and Flip Loan
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