LTV vs. LTC: Two Leverage Tests, One Loan

Loan-to-value divides the loan by the property's appraised value; loan-to-cost divides the same loan by total project cost. They are two separate leverage tests on one loan, and lenders size to whichever implies the smaller loan. On a $10,000,000 value with $11,000,000 of total cost, a $7,500,000 loan is 75.0% LTV but 68.2% LTC.

LTV asks: how much are we lending against what the asset is worth? It protects the lender from a borrower overpaying relative to market value. LTC asks: how much are we lending against what the project actually costs? — purchase price plus every dollar of capex, closing, and carry. That distinction barely matters on a stabilized purchase where cost and value are close, but it matters a lot on a value-add or development deal.

When you spend $1,000,000 in capex on top of a $10,000,000 purchase, total cost climbs to $11,000,000 while the as-is value may still be $10,000,000. The same loan now looks safer on a cost basis than on a value basis — or the reverse, if the renovation lifts value above cost. Lenders run both loan-to-value and loan-to-cost and take the lower-implied loan, because the binding test changes deal by deal.

In practice the borrower's question is always "which one caps my proceeds?" When cost exceeds value, the LTC ceiling usually binds first, so an LTV-passing loan can still get cut down. See the metrics hub for how LTV and LTC sit alongside DSCR and debt yield in a full loan-sizing stack.

Worked example — same loan, two tests

The discipline: the lender sizes to the lower-implied loan of the two — so confirm which test binds before you assume the proceeds you priced into the deal.