Two different denominators
Loan-to-Cost (LTC) measures the loan against your total project cost — land, hard costs, soft costs and contingency. Loan-to-Value (LTV) measures the loan against the appraised value of the finished project. Lenders often cap a construction loan at the lower of the two.
Why both matter
If your project creates a lot of value (the completed value is well above total cost), LTV may not be the binding constraint — LTC will cap your loan. If your basis is high relative to market value, LTV becomes the limiting factor instead.
A simple example
Say total cost is $2,000,000 and completed value is $2,600,000. At 85% LTC, the loan could be $1,700,000. At 75% LTV, the loan caps at $1,950,000. The lender will use the lower number: $1,700,000 in this case.
What moves these ratios
Sponsor experience, asset class, market, and recourse all influence where a lender sets leverage. Non-recourse debt typically carries lower leverage than full recourse.
- Stronger sponsor track record can push LTC higher
- Land contributed at cost (not appraised value) reduces effective leverage
- Pre-leasing or pre-sales can improve LTV assumptions
How we use this
When we shop your deal, we calculate both ratios up front so we only bring it to lenders whose boxes you actually fit — saving you time and protecting your credit from unnecessary inquiries.