Loan-to-Cost (LTC)

Loan-to-cost (LTC) is the loan amount divided by the total project cost — purchase price plus renovation/construction budget, closing costs, and carry. A $7,500,000 loan on a deal that costs $10,000,000 all-in is 75% LTC.

How it's used: LTC is the leverage test for value-add and development deals, where the purchase price understates the real basis. Construction and bridge lenders size to LTC; stabilized lenders size to LTV. Most lenders underwrite to the lower of LTV and LTC.

Why it matters: on a heavy value-add deal the two diverge sharply — you might be at 65% LTV against the as-is price but 80% LTC against the all-in cost. LTC keeps the sponsor's equity meaningfully in the deal through the riskiest phase (the renovation), which is exactly when lenders want skin in the game.

Formula: LTC = Loan amount ÷ Total project cost (purchase + capex + closing + carry)

Pair LTC with yield-on-cost to see whether the leverage is buying a real development spread. See the multifamily underwriting guide for how cost basis flows through the model.