Turning Terms into Returns — Part 3: The Sliding Scale Nobody Talks About
A lender advertises 90% on purchase and 100% on rehab. Sounds straightforward. But if that same lender has an overall LTV cap against total project cost, the advertised percentages may not be what you actually receive. As your rehab budget grows, your purchase loan percentage quietly shrinks — without a single number on the term sheet changing.
How It Works
Take two deals with the same $300,000 total project cost and $428,000 ARV, with a lender offering 90% on purchase, 100% on rehab, and a 90% overall LTV cap:
Deal A: Purchase $275,000 / Rehab $25,000
Maximum loan: $270,000 (90% of $300,000)
Rehab loan: $25,000 (100%) ✓
Purchase loan: $245,000 (89% of purchase price) ✓
Deal B: Purchase $175,000 / Rehab $125,000
Maximum loan: still $270,000
Rehab loan: $125,000 (100%) ✓
Purchase loan: $145,000 (83% of purchase price) — not the advertised 90%
The lender didn't change their terms. The overall LTV cap did the work behind the scenes.
The Full Sliding Scale
Here's how the purchase loan percentage shifts across the same $300,000 project as the rehab budget grows:
| Purchase Price | Rehab Budget | Actual Purchase Loan % |
|---|---|---|
| $275,000 | $25,000 | 89% |
| $250,000 | $50,000 | 88% |
| $200,000 | $100,000 | 85% |
| $175,000 | $125,000 | 83% |
Why It Matters
The higher your rehab budget relative to your purchase price, the more cash you need at closing — even with a lender advertising 90% on purchase. On a heavy value-add deal where rehab represents a large portion of total project cost, this sliding scale can meaningfully increase your out-of-pocket requirement.
Underwriting accurately means accounting for it before you make the offer, not after you're at the closing table.
RE Data Metrix calculates this automatically. Enter the lender's full term sheet and the platform shows your actual purchase loan percentage — not just the advertised one.
Analyze your next deal with RE Data Metrix →
Next in the series — Part 4: Points vs. rate. How your hold time determines which one actually costs you more.