Loan to Cost (LTC)


Loan-to-cost in real estate means the ratio of total loan amount versus total project cost. This term is mostly used in hard money lending.


Typically, borrowers want the highest LTC possible to minimize their cash out of pocket requirements (and thereby maximizing leverage and their cash on cash return). But lenders have guidelines that typically require borrowers to have some “skin in the game”.

A typical LTC guideline for lenders can range from 65%-90% depending on the transaction.


Borrower is buying a property for $150K that is worth $200K and plans on rehabbing the property for $25K. The total project cost is $175K.

Purchase Price $150K x 80% = $120K

Rehab Budget $25K x 100% = $25K

Total Loan $145K (82.9% LTC).

Now in this example, a borrower may say that they want the loan structured based on the as-is value ($200K) instead of the purchase price ($150K). Many lenders will allow slightly higher leverage against purchase price if it is being purchased below market value (i.e.: a +5% increase). But they will not structure the loan based on getting a good deal as shown below.


As-Is Value $200K x 80% = $160K

Rehab Budget $25K x 100% = $25K

Total Loan $185K (105.7% LTC).

While this is not possible, but many lenders may allow 85% leverage toward purchase (i.e.: $150K x 85% = $127.5K) vs the standard $120K leverage outlined previously).


Oleg Donets headshotAndrew Abas


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