Loan-to-Cost (LTC)

LTC compares the loan amount to the total project cost — acquisition price plus renovation, construction, or carrying costs — rather than to the property's finished value. Lenders use LTC alongside LTV to ensure the sponsor has real cash equity invested in a project; construction and bridge loans commonly cap LTC at 75–85%.

Formula: LTC = Loan Amount ÷ Total Project Cost (Purchase + Capital Improvements + Soft Costs)

LTC exists because LTV alone can be misleading on value-add and ground-up construction deals, where the finished value doesn't yet exist and a large gap can separate purchase price from stabilized worth. Lenders use LTC to confirm the borrower is contributing genuine equity into the total cost stack, not just the acquisition.

On a typical bridge or construction loan, the lender will underwrite to the lower of the LTV (against appraised as-is or as-stabilized value) and the LTC (against total cost). A sponsor buying below market and planning heavy renovations may find their deal LTC-constrained even though the LTV looks conservative, because the lender wants to see the borrower funding a meaningful slice of the actual capital needed to complete the business plan.

Most bridge and rehab lenders quote maximum LTC in the 75–85% range for the purchase and renovation combined, though some will advance up to 90–100% of renovation costs specifically (while still capping blended LTC) for experienced sponsors with strong track records.

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