What Is Loan-to-Cost?
Loan-to-cost (LTC) is a loan amount divided by the total cost of a project - purchase price plus renovation or construction costs. Construction and fix-and-flip lenders use it to size loans, because the finished value does not exist yet; it is usually checked alongside loan-to-value or loan-to-ARV.
Loan-to-Cost in plain English
Loan-to-cost tells you what share of a project's total cost the lender will fund. On a $340,000 flip (purchase plus renovation), a 75% LTC loan is $255,000 and the investor brings the other $85,000.
It is the main sizing test for construction and renovation loans, usually paired with a limit on the loan as a share of the finished value.
Formula
LTC = Loan Amount ÷ Total Project Cost × 100- Loan Amount
- The total loan, including any renovation funds released in draws.
- Total Project Cost
- Purchase or land cost plus construction or renovation costs (and, for some lenders, soft costs).
Worked example
Loan-to-cost on a fix-and-flip
Illustrative example - round numbers, not current market data. Calculated with Reaixo's calculator engines.
Assumptions
- Purchase price
- $280,000
- Renovation budget
- $60,000
- Lender's maximum loan-to-cost (illustrative)
- 75%
- After-repair value
- $450,000
| Step | Calculation | Result |
|---|---|---|
| 1. Total cost | $280,000 + $60,000 | $340,000 |
| 2. Maximum loan | $340,000 × 75% | $255,000 |
| 3. Loan-to-cost | $255,000 ÷ $340,000 × 100 | 75% |
| 4. Loan-to-ARV | $255,000 ÷ $450,000 × 100 | 56.7% |
| 5. Cash the investor brings (before closing and holding costs) | $340,000 − $255,000 | $85,000 |
Loan-to-cost: 75%. The lender funds 75% of what the project costs, so the investor needs $85,000 plus closing and holding costs. Measured against the finished value the loan is only 56.7%, which is why lenders often check both limits and lend the lower amount.
What this calculation leaves out
- Lenders differ on what counts as cost - some exclude closing costs, interest reserves or the developer's fee.
- Renovation money is usually released in draws after work is inspected, not at closing.
Calculate Loan-to-Cost
Loan-to-cost calculator
Loan Amount ÷ Total Project Cost × 100
Why it matters
LTC sets how much cash the investor must bring before the project starts; a lender may lend a high share of cost but still cap the loan by the after-repair value.
When Loan-to-Cost is used
- Estimating how much cash a flip or construction project needs up front.
- Comparing hard-money and construction loan offers.
- Structuring the capital stack for a development.
Common mistakes
- Assuming every lender counts the same costs in "total cost".
- Forgetting that renovation funds are released in draws after inspections.
- Ignoring the lender's separate limit on loan-to-ARV.
Loan-to-Cost: frequently asked questions
What is the difference between LTC and LTV?
LTC divides the loan by the project's cost; LTV divides it by the property's value. Construction lenders often check both and lend the lower amount.
What LTC do hard-money lenders offer?
It varies by lender, borrower experience and project. Ask each lender for its maximum LTC and loan-to-ARV.
Does total cost include closing costs?
It depends on the lender. Lenders define cost differently, so confirm which items are included before comparing offers.
More Investing Terms
Recommended next step
Model the loan, cash needed and profit on a flip.
Fix-and-flip calculator →Apply it to a specific property: Fix and Flip Analysis.
Sources and review
No regulator defines this term; the page follows common industry practice.
Where this applies: Not regulated. Investment and valuation ratios are industry and appraisal conventions; lenders, appraisers and analysts may define inputs differently, so check how a figure was calculated.
Last reviewed: · Updated:
Examples use illustrative figures; rules of thumb are labelled as such. Rates, limits and program rules change - confirm current figures with your lender or a qualified professional.
This definition is provided for general educational purposes and is not financial, legal, tax, or real estate advice. Verify important decisions with appropriately qualified professionals.
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