What is Loan-to-Cost (LTC) Ratio?
The ratio of the loan amount to the total project cost, commonly used in construction and development lending.
Formula
LTC = Loan Amount ÷ Total Project Cost
Typical range
Most construction lenders cap LTC at 75–80%, requiring 20–25% equity contribution
Loan-to-Cost (LTC) Ratio in commercial lending practice
LTC accounts for land acquisition, hard construction costs, soft costs (architecture, permits, financing fees), and contingencies. It differs from LTV in construction lending because the project is not yet complete and there is no current appraisal value to measure against. As construction completes, the loan typically converts from LTC to LTV-based monitoring against a stabilized appraisal.
Related terms
Related concepts in commercial underwriting
LTV (Loan-to-Value Ratio)
The ratio of the loan amount to the appraised value of the collateral property.
Read definitionCRE (Commercial Real Estate)
Real property used for business purposes, including office, retail, industrial, multifamily (5+ units), and hospitality properties.
Read definitionDSCR (Debt Service Coverage Ratio)
The ratio of net operating income (or available cash flow) to total annual debt service, including principal and interest payments.
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How Loan-to-Cost (LTC) Ratio shows up in AI underwriting
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