What Does LTC Mean in Real Estate?
LTC stands for Loan-to-Cost ratio. It measures the relationship between the loan amount and the total project cost (purchase price plus renovation or construction costs). LTC is the primary metric lenders use to size construction loans, rehab loans, and hard money loans because it accounts for the total capital required, not just the property's current value.
How to calculate LTC
LTC = Loan Amount / Total Project Cost
Example: $240,000 loan / $300,000 total cost (purchase $200,000 + rehab $100,000) = 80% LTC
LTC vs LTV
LTV (Loan-to-Value) compares the loan to the property's current or after-repair value. LTC compares the loan to what you are actually spending. These are different numbers that serve different purposes.
| Metric | Formula | Used For | Denominator |
|---|---|---|---|
| LTC | Loan / Total Cost | Construction/rehab loans | Purchase + renovation costs |
| LTV (current) | Loan / Current Value | Purchase loans | Current appraised value |
| LTV (after-repair) | Loan / ARV | Refinance sizing | After repair value |
Typical LTC thresholds
Hard money lenders typically offer 75-90% LTC, meaning you need to bring 10-25% of the total project cost as your equity contribution. Some lenders advertise "100% of rehab costs" which sounds like 100% financing, but they still require a down payment on the purchase. When you add the purchase down payment and the rehab funding together, the LTC is usually 75-85%.
Example: Purchase price: $150,000. Rehab budget: $50,000. Total cost: $200,000.
Lender offers 80% LTC: $160,000 loan. Your equity: $40,000.
Structured as: 80% of purchase ($120,000) + 100% of rehab ($50,000 in draws) = $170,000 loan = 85% LTC.
Why LTC matters for flippers
For fix-and-flip investors, LTC determines how much cash you need per deal. A higher LTC means less money out of pocket per project, which means you can do more projects simultaneously. However, higher LTC also means higher risk because you have less equity cushion if the project goes over budget or the ARV comes in lower than expected.