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.