LTC vs. LTV: What These Ratios Mean and Why They Matter for Your Loan
Loan-to-cost and loan-to-value show up on every term sheet, and they're often used loosely — even interchangeably — by borrowers who haven't had to sit down and calculate either one. They measure different things, and which one a lender leans on says a lot about how your deal will be underwritten.
What is LTC (Loan-to-Cost)?
Loan-to-cost measures your loan amount against the total cost of the project — purchase price plus every dollar of construction or rehab budget. It answers a simple question: of everything this project will cost to complete, how much is the lender funding versus how much are you putting in?
Say a project costs $500,000 total — a $300,000 lot plus $200,000 in construction — and a lender offers 90% LTC. That's a maximum loan of $450,000, meaning you'd bring $50,000 of your own equity to the deal. LTC is the ratio that governs most ground-up construction lending, because there's no existing finished asset yet to measure value against — only a budget.
What is LTV (Loan-to-Value)?
Loan-to-value measures your loan amount against the value of the property — either its current as-is value, or, on a rehab deal, its projected after-repair value (ARV). It answers a different question: regardless of what this project costs to build, what is the finished asset actually worth, and how much is the lender willing to lend against that?
Say a distressed property will be worth $400,000 once renovated, and a lender caps lending at 75% of ARV. That's a maximum loan of $300,000 — regardless of whether the purchase and rehab together cost more or less than that. ARV-based LTV is the ratio that governs most fix-and-flip lending, because the whole thesis of a flip is that the finished value exceeds the total cost — that gap is the investor's margin.
Why lenders use different ratios for different loans.
Neither ratio is "better" — they're suited to different situations, which is why a single lender often applies both, capping a loan at whichever number comes in lower. Here's how it plays out across the loan programs available through BldFi:
| Loan product | Primary ratio | Why |
|---|---|---|
| New Construction | 90% (LTC) | No existing asset to value yet — the budget is the basis. |
| Fix & Flip | 75% of ARV (LTV) | The margin between cost and finished value is the deal itself. |
| Renovation | 85% (LTC) | A mix — real budget to fund, but an existing property already has value. |
How this affects how much you can borrow
When both ratios apply to your deal — common on renovation and heavier rehab projects — a lender calculates each and lends against whichever produces the smaller number. A project with a low total cost but a modest ARV might be LTV-constrained even at a generous LTC; a project with strong finished value but a thin equity contribution might be LTC-constrained even with plenty of ARV cushion.
The practical upshot: know both numbers before you apply. A realistic construction or rehab budget tells you your LTC picture; honest comparable sales or an appraisal tell you your ARV and LTV picture. Walking into underwriting with both already worked out — rather than an optimistic guess on either — is what gets a term sheet issued in 24–48 hours instead of a back-and-forth over numbers.
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