Construction Loan LTC & LTV: What They Mean and Why They Matter

Two metrics dominate construction lending: LTC (Loan-to-Cost) and LTV (Loan-to-Value). Understanding both is essential for planning a construction project, because they determine how much financing you can get and how much equity you need to bring.

LTC (Loan-to-Cost)

LTC is the loan amount as a percentage of the total project cost. The total project cost includes land acquisition, construction costs, and soft costs (permits, fees, engineering, interest, etc.).

Formula: LTC = Loan Amount ÷ Total Project Cost

For example, if your total project cost is $1 million and the lender offers 85% LTC, the maximum loan is $850,000, and you need $150,000 in equity.

Typical ranges: Most construction lenders offer 75–90% LTC. The exact percentage depends on the lender, the project type, the borrower's experience, and the market.

LTV (Loan-to-Value)

LTV is the loan amount as a percentage of the completed project's appraised value (the as-completed value, sometimes called ARV for fix-and-flip projects).

Formula: LTV = Loan Amount ÷ As-Completed Appraised Value

For example, if the as-completed appraisal is $1.5 million and the lender caps LTV at 70%, the maximum loan is $1.05 million — even if LTC would allow more.

Typical ranges: Most construction lenders cap LTV at 65–75%. The exact percentage depends on the lender and project type.

How LTC and LTV Work Together

Lenders evaluate both metrics, and the loan amount is limited by whichever is lower. For example:

• Total project cost: $1,000,000
• As-completed value: $1,500,000
• Max LTC (85%): $850,000 loan
• Max LTV (70%): $1,050,000 loan
• Max loan = $850,000 (limited by LTC)
• Equity needed = $150,000

Why Both Metrics Matter

LTC protects the lender by ensuring the borrower has skin in the game — they've invested their own money in the project. LTV protects the lender by ensuring the loan is well-secured by the completed property's value. If the project runs over budget, the borrower needs to cover the overrun — the lender won't increase the loan beyond the LTC or LTV limits.

What Affects Your LTC and LTV

• Borrower experience: More experienced developers may get higher LTC/LTV.
• Project type: Ground-up construction may have lower LTC than renovation projects.
• Market conditions: Lenders may be more conservative in uncertain markets.
• Property type: Residential may have different limits than commercial.
• Lender: Different lenders have different risk appetites.

Next Step

If you're planning a construction project, submit your information for a review, or read our construction financing guide.