LTV vs. LTC: Loan-to-Value vs. Loan-to-Cost

Both LTV and LTC are ratios that cap how much a lender will lend — but one measures against the property’s value and the other against what you actually spend. On a stabilized purchase they’re close; on a value-add or construction deal they can be worlds apart.

What each one measures

LTV (loan-to-value) = loan ÷ property value (or purchase price). It’s the standard test for a stabilized acquisition. A $1,900,000 loan on a $2,720,000 property is about 70% LTV.

LTC (loan-to-cost) = loan ÷ total project cost, including purchase price plus renovation, closing, and soft costs. Construction and value-add lenders size on LTC because “value” doesn’t exist yet — there’s only what you’re spending to create it.

Side by side

How they work together

On a heavy value-add deal a lender often sizes the loan on LTC during the work, then re-tests it against LTV once the property stabilizes and has a real appraised value. If your business plan creates value — you spend $2.4M all-in and stabilize at a $3.2M value — the LTV at stabilization is far lower than the LTC you borrowed at, which is exactly the point of the play.

Worked example

You buy a tired building for $2,000,000 and budget $400,000 of renovation — $2,400,000 total cost. At 70% LTC the loan is $1,680,000. After the work, the property appraises for $3,200,000; that same $1,680,000 loan is now just 52% LTV. You’ve created equity, and the lender’s exposure dropped even though the loan didn’t.

The takeaway

Expect LTC to govern while you’re building or repositioning and LTV to govern at purchase and refinance. Know which one your lender is sizing on, because it changes how much cash you bring to close. Check your ratio with the LTV calculator, confirm the income side with the DSCR calculator, and model the whole plan in the deal analyzer.