Loan-to-cost, and the equity gap.
Loan-to-cost sizes construction and value-add loans against what a project actually costs to build, not a projected value. Enter the loan amount and total cost to see the leverage and the equity the sponsor must bring.
Why cost, not value
For a project under construction, value is a projection and cost is concrete. LTC measures the loan against total development cost, which is why construction lenders lean on it more than LTV.
The flip side of LTC is sponsor equity. An 80% LTC loan requires 20% equity, and lenders care where that equity sits and when it goes in.
LTC and LTV together
Construction deals are often sized to the lower of an LTC limit and a loan-to-value limit on the completed, stabilized value. Both constraints get tested, and the tighter one governs.
As value is created, some lenders release additional proceeds, tracked against as-is and stabilized values.
Questions lenders ask
- What is a typical loan-to-cost?
- Construction LTC commonly runs 60% to 80% depending on risk and sponsor, requiring 20% to 40% equity. Value-add deals vary widely with the business plan.
- What is the difference between LTC and LTV?
- LTC measures the loan against total project cost; LTV measures it against appraised value. Construction lenders use LTC because cost is concrete while completed value is a projection.
See your deals in real time.
Send us one live deal. We will build the room on your own checklist.