Loan-to-Cost Ratio (LTC)
The loan amount as a percentage of total project cost, used mostly on construction and value-add deals.
Loan-to-cost, or LTC, measures the loan against the total cost to build or reposition a property, not its finished value. Total cost includes land, hard costs, soft costs, and often an interest reserve. Construction and heavy value-add lenders lean on LTC because there is no stabilized value yet.
Most construction lenders fund 70 to 80% of cost, leaving the sponsor to cover the rest as equity. Lenders also run a loan-to-value test on the projected finished value, then size the loan to whichever limit is lower. That dual test keeps proceeds in check.
A sponsor who buys land early or brings other equity can lower the LTC the lender needs to fund, which strengthens the request. Higher LTC means less skin in the game and usually a higher rate.
Formula
LTC = Loan Amount / Total Project Cost
Worked Example
A ground-up project costs $5,000,000 all in. The lender funds 75% LTC, or $3,750,000. The sponsor contributes the remaining $1,250,000 in equity.
Why It Matters
On construction deals, LTC often sets the loan before value ever comes into play. Knowing your cost basis and equity early tells you how much a lender will fund and how much cash you must commit.
Related Terms
Related Programs and Tools
Frequently Asked Questions
How is LTC different from LTV?
LTC measures the loan against total project cost, while LTV measures it against appraised value. Construction lenders test both and size to the lower result.
What LTC do construction lenders allow?
Most fund 70 to 80% of total cost. Stronger sponsors with experience and liquidity can sometimes push toward the higher end.