Hard Money Bridge Lending: Loan-to-Cost (LTC) vs. Loan-to-After-Repair-Value (LTARV) Sizing
A bridge lending underwriting analysis comparing Loan-to-Cost (LTC) ceilings, 70% LTARV limits, extension fees, and default rate triggers.
Hard Money Bridge Sizing Modeler
Size rehab draws, test LTARV limits, and evaluate loan extension fees
Empirical Analysis & Findings
## Bridge Debt Economics for Real Estate Value-Add Projects
Hard money bridge loans provide short-term capital (6 to 24 months) for acquisition and substantial rehabilitation of distressed residential and commercial properties.
### 1. Dual Constraint Sizing (LTC vs. LTARV)
Bridge lenders enforce two concurrent underwriting limits:
$$\text{Loan Amount} = \min(\text{Total Project Cost} \times 85\%, \text{After-Repair Value (ARV)} \times 70\%)$$
- **Total Cost**: Purchase price + 100% certified contractor budget.
- **After-Repair Value (ARV)**: Subject-to-completion appraisal based on comparable renovated properties.
| Loan Feature | Typical Hard Money Bridge Terms | Commercial Bank Permanent Loan |
|:-------------|:--------------------------------|:-------------------------------|
| Term Length | 12 - 24 Months | 5 - 10 Years |
| Interest Rate| 10.5% - 13.5% (Interest-Only) | 6.25% - 7.50% (Amortizing) |
| Origination Points | 1.5% - 2.5% | 0.5% - 1.0% |
| Underwriting Speed | 5 - 10 Business Days | 45 - 90 Days |
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Frequently Asked Questions
What is the difference between LTC and LTARV in bridge loan underwriting?
LTC (Loan-to-Cost) measures debt against total purchase plus rehab budget (typically 85-90% max), while LTARV sizes debt against future completed appraised value (typically 70-75% max).
What happens if a borrower needs to extend a 12-month hard money bridge loan?
Lenders grant 3 to 6-month extensions upon payment of a 100 to 200 bps extension fee, provided construction is on schedule and interest escrows are replenished.
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