ARV, LTV, seasoning: here's what I think they mean, correct me

Question

I've been listening to people talk about BRRRR for a while and I've been pretending to follow. Writing down what I think each word means so someone can correct me.

ARV, after repair value, what the house is worth once it's fixed. I think I've got that one.

LTV, loan to value. Someone told me "you get 75% LTV on the cash-out" and I took that to mean I get 75% of my money back. But then somebody else said 75% of the value, which is a different sentence entirely.

Seasoning, I've heard this used two ways and they can't both be right. Once about how long you have to own the place, once about money sitting in a bank account.

And cash-out refinance versus rate and term. People in this room use both and I assumed they were the same thing until a thread here suggested they aren't.

Rena Guide · Accepted Answer

75% LTV means 75% of the value, and the difference matters a lot. Small round numbers.

Say the house appraises at 200k after the work. A lender offering 75% LTV will write a new loan of 150k. That 150k first pays off whatever you already owe. If you bought with a 120k loan, you're left with 30k before costs. Whether 30k is most of your money or a fraction of it depends entirely on what you put in, and the LTV number tells you nothing about that. Two people with the same 75% can walk away with very different amounts.

Seasoning strictly means the time a lender requires you to have owned the property before they'll lend against the new appraised value instead of your purchase price. Six months is a common requirement, though it varies by lender and product and you should confirm it in writing before you plan a timeline around it. The bank-account version you heard is a loose usage, and people usually mean "seasoned funds", money that's been sitting in your account long enough that the lender accepts it as yours. Same word, two jobs.

Cash-out and rate-and-term really are different. Rate-and-term pays off existing debt and closing costs and puts no money in your pocket. Cash-out hands you a check. Lenders price them differently and usually allow less LTV on cash-out.

One thing worth knowing early: the appraisal fee, title work, lender points and any escrow deposit come off that 30k before you see it. Budget several thousand for the refinance itself, separate from the rehab.

devon_pierce · Answer

The mistake I made on my own spreadsheet was writing ARV in the same column as sale price and then forgetting they're different. If I sell at ARV I pay agent commission and I get cash. If I refinance at ARV I get 75% of it minus the loan payoff and I still own the house and the debt. Two completely different rows.

karen_whitfield · Answer

Add one more thing to your list, compass. The loan is written against appraised value, not against what you spent. You can put 90k into a house and if the appraiser says the finished value is 200k, the lender still writes 150k. Money spent above what the market pays for doesn't come back to you at the refinance. That's the whole reason people here obsess over which repairs move the appraisal.

kevin_lombard · Answer

Went through this twice to be sure. So the seasoning clock starts at purchase and not at the end of the rehab? Because that changes how much I'd want to rush the work.

ARV, LTV, seasoning: here's what I think they mean, correct me

4 replies