In regards to financing real estate investments particularly as an investor or a developer, there are basic lending measures that an investor must be aware of. Loan-to-Value (LTV) and Loan-to-Cost (LTC) are two of the most notable ones. Although they may sound similar, they are actually different things that will have different impacts on the ways your funding options may change. So, when it comes to LTV vs LTC real estate, which one should you care about more? Let’s simplify it.
What Is Loan-to-Value (LTV)?
Loan-to-Value (LTV) is a ratio that compares the loan amount to the appraised market value of the property. It informs the lenders the degree of risk they are taking by funding your deal.
Here’s the formula:
LTV = (Loan Amount ÷ Appraised Property Value) × 100
For example, if you’re borrowing $700,000 for a property that appraises at $1,000,000, your LTV is 70%.
Why does LTV matter?
- Lenders use LTV to determine your down payment.
- Moreover, a lower LTV means less risk for the lender.
- It also improves your chances of approval.
- Plus, a high LTV may require mortgage insurance or higher interest rates.
LTV is often used in buy-and-hold properties, refinancing, or stabilized real estate investments.
What Is Loan-to-Cost (LTC)?
Loan-to-Cost (LTC) measures how much of the project’s total cost a lender is willing to finance. It focuses more on project cost rather than property value.
Here’s the formula:
LTC = (Loan Amount ÷ Total Project Cost) × 100
Let’s say your project costs $900,000 (including purchase price and renovations) and you get a $675,000 loan. Your LTC would be 75%.
Why is LTC important?
- It’s commonly used in construction and fix-and-flip loans.
- Furthermore, it gives insight into how much skin you have in the game.
- Additionally, a higher LTC means you’re contributing less upfront capital.
- Finally, lenders assess LTC to manage risk during value-add projects.
LTV vs LTC Real Estate: Key Differences
So, now let’s look at how LTV and LTC differ and why it matters:
| Factor | LTV (Loan-to-Value) | LTC (Loan-to-Cost) |
| Based On | Market/Appraised Value | Total Project Cost |
| Used For | Refinancing, buy-and-hold | Fix-and-flip, construction |
| Risk Focus | Market fluctuations | Total capital invested |
| Common Max Ratio | 70%-80% | 75%-85% |
| Investor Focus | Long-term equity | Short-term rehab margin |
Both metrics help lenders evaluate risk. However, they do so from different angles. LTV looks at current value. LTC looks at actual money going into the deal.
LTV vs LTC Real Estate: Which One Matters More?
It depends on your investment strategy.
For value-add or development deals:
LTC matters more. Lenders want to see how much the project will cost and how much you’re putting in. They often lend based on a percentage of cost, not value.
For example, if you’re flipping a property or building from the ground up, your rehab and construction costs matter more than what the current market says the property is worth.
For stabilized or income-producing properties:
LTV is more important. Lenders look at the current or expected value of the asset. They may also review rental income and cap rates.
So, when comparing LTV vs LTC real estate, always consider the type of deal. Fix-and-flip? Focus on LTC. Buy-and-hold or refinance? LTV is your key metric.
How Lenders Use LTV vs LTC Real Estate Deals
Lenders often use both metrics to decide:
- How much they will lend.
- What terms they will offer.
- How risky your deal appears.
Some private lenders may cap both LTV and LTC to manage risk. For example, a lender might fund up to 75% LTC but no more than 70% LTV. This ensures the deal works both in terms of cost and value.
Real-World Example: LTV vs LTC real estate
Let’s say you’re buying a rundown multifamily property for $500,000 and plan to spend $250,000 on renovations. So your total cost is $750,000.
You ask for a $600,000 loan.
- LTC = $600,000 ÷ $750,000 = 80%
- After rehab, the property is worth $1,000,000
- LTV = $600,000 ÷ $1,000,000 = 60%
In this case, the LTV is low, which looks good to lenders. The 80% LTC is high but still within typical private lending limits.
What Investors Should Know About LTV vs LTC real estate
If you’re seeking CMBS loans or conventional bank financing, LTV will likely be the deciding factor. These lenders rely on appraised values and long-term returns.
If you’re working with a private lender like Loan Locker, and your project involves ground-up construction or value-add renovations, they’ll pay close attention to your LTC.
Either way, make sure you know your numbers before applying.
Why Work with Loan Locker?
At Loan Locker, we understand both LTV and LTC—and how they impact real estate deals. As a direct private lender based in Tampa, Florida, we offer fast, flexible funding for:
- Fix and flip projects
- RV park developments
- Land purchases
- Mobile home parks
- Multifamily investments
- And other commercial ventures
We regulate the lending process because we have access to discretionary capital. That translates to quicker approvals, reduced back-logs and improved service.
We lend to ventures in various states and expertise in the loans that cannot be executed by the conventional banks. There is no need to stress or invest a lot of time trying to find the way around the funding process. We can quickly lead you through the process regardless of whether you are an experienced investor or just a budding one.
Final Thoughts: LTV vs LTC Real Estate
Understanding LTV vs LTC in real estate isn’t just about getting a loan. It’s about knowing how lenders think, and positioning your deal for success.
In short:
- LTV = Important for long-term value deals.
- LTC = Critical for construction, rehab, and short-term projects.
- Both matter, but the right one depends on your project type.
Need help deciding which one applies to your deal? Or want to secure private funding that fits your needs?
Reach out to Loan Locker today and get your real estate project moving fast.