Loan-to-Cost, or LTC, is one of the most critical ratios in real estate project financing, especially in hard money lending. For investors working on value-add projects, such as fix-and-flips, ground-up builds, or major rehabs, LTC defines how much of the total project cost a lender is willing to finance.
It’s not just a number lenders use to protect themselves. It’s a tool real estate professionals can use to evaluate the strength of a deal, plan capital needs, and set realistic expectations about funding.
LTC measures the ratio between the loan amount and the total project cost. That includes both the purchase price of the property and the rehab or construction budget. In some cases, depending on the lender, soft costs such as permits, design fees, or insurance may also be factored into the project cost; however, the core inputs are always the purchase and the work budget.
Formula:
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Loan-to-Cost (%) = (Loan Amount ÷ Total Project Cost) × 100 |
For example, if a project costs $300,000 in total, $225,000 to purchase the property and $75,000 to renovate it, and the loan amount is $240,000, the LTC is 80%.
Hard money lenders generally offer LTC ratios in the range of 75% to 90%, depending on the deal type and borrower profile. Fix-and-flip projects often receive higher LTC, especially when the borrower has experience and a strong exit plan. New construction deals may see more conservative ratios due to the added complexity and market risk.
Some lenders also break the loan into two parts: one for the property acquisition and one for the rehab or construction budget. In that case, the purchase portion might be funded at a lower LTC, while the rehab portion is reimbursed through draw requests as work progresses.
While LTC measures the loan against your cost basis, Loan-to-Value (LTV) measures it against the property’s value, either current or after-repair. This distinction matters because LTV and LTC can tell very different stories about the same deal.
Let’s say you’re buying a distressed property for $200,000, putting $100,000 into renovations, and expecting an after-repair value (ARV) of $450,000. Your total project cost is $300,000. If your lender gives you a $270,000 loan:
LTC = 90% ($270K ÷ $300K)
LTV = 60% ($270K ÷ $450K)
Both ratios matter. The LTC shows how much of the cost you’re borrowing, while the LTV shows how much of the value that the loan represents. Some lenders will consider both and require you to meet specific thresholds for each.
LTC has a direct effect on cash flow, timelines, and risk management. If your loan covers 90% of the total cost, you can move faster and tie up less capital. But it also means thinner margins if anything goes wrong.
Hard money lenders often release rehab funds in stages. That means even if you qualify for a high LTC loan, you’ll still need upfront cash to start the work and pass inspections to access draw funds.
Your LTC also affects your total out-of-pocket exposure. If you’re bringing in partners or raising funds, this number is critical to structuring those agreements. And if your budget increases during the project, your LTC shifts may require more capital from you midstream.
Lenders want to know that your numbers are grounded in reality. To support a higher LTC, be prepared to provide:
Some lenders may also ask about your track record. If it’s your first project, they may offer a lower LTC until you’ve proven yourself. Experienced investors who’ve completed similar deals successfully are more likely to qualify for higher LTC ratios.
Not every lender defines or applies LTC the same way. Before you move forward, ask:
These questions help you plan more effectively and avoid unexpected surprises. Many deals fall apart not because they’re bad investments, but because the financing wasn’t structured with the correct assumptions.
Loan-to-Cost is more than a checkbox for lenders. It’s a critical tool for evaluating the strength of your deal and the actual cost of your capital. A high LTC might sound attractive, but if it leaves no room for budget changes or timeline shifts, it could put your project at risk.
The most successful real estate investors understand both sides of the equation: how much a lender will fund, and how much flexibility they need to complete the job profitably.
At Unitas Funding, we collaborate with experienced investors and first-time project owners to structure hard money loans that facilitate successful real estate transactions. Our team evaluates your deal holistically, factoring in LTC, LTV, project complexity, and market timing, to provide you with the capital you need on terms that align with your needs.
Tell us about your project. Let’s see what you can build. Visit unitasfunding.com to get started.