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Loan-to-Cost
The ratio of the loan amount to the total project cost including acquisition and renovation.
Definition
Loan-to-Cost (LTC) compares the loan amount to the total cost of acquiring and improving a property. If you buy a property for $300,000 and spend $100,000 on renovations (total cost $400,000), and your loan is $300,000, your LTC is 75%. LTC is commonly used in construction and renovation lending, where the project cost may differ significantly from the current appraised value. Lenders use LTC alongside LTV and After Repair Value to determine maximum loan amounts. A lower LTC means the borrower has more capital invested, reducing the lender's risk.
Related Terms
LTV (Loan-to-Value)
The ratio of a loan amount to the appraised value of the property.
After Repair Value (ARV)
The estimated market value of a property after planned renovations and improvements are completed.
Fix and Flip
Buying a property below market value, renovating it, and selling it for a profit.
Value-Add
An investment strategy focused on improving a property to increase its income or value.
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