- LTV (Loan-to-Value) is used by permanent lenders: loan ÷ appraised value of the property.
- LTC (Loan-to-Cost) is used by construction and bridge lenders: loan ÷ total project cost.
- LTV reflects a stabilized, income-producing asset's value. LTC reflects the capital invested to create that asset.
- LTC is almost always a higher number than LTV on the same deal (total cost < stabilized value in most cases).
- Using the wrong metric when sizing a loan leads to surprises at underwriting — know which one applies to your deal type.
LTV and LTC are frequently confused — and that confusion costs borrowers in misplaced expectations, incorrectly sized equity contributions, and failed loan applications. The two metrics measure leverage, but they measure it against different denominators, and different lender types use them in fundamentally different ways.
Loan-to-Value (LTV): The Permanent Lender's Metric
LTV is the ratio of the loan amount to the appraised market value of the property. LTV = Loan ÷ Appraised Value. A $10M loan on a property appraised at $15M is a 66.7% LTV loan. LTV is the primary leverage metric for permanent lenders — CMBS, bank, SBA, and agency lenders — because they're lending against a completed, income-producing asset whose value is established by an independent appraisal. Maximum LTV by lender type: CMBS 65–75%, Fannie/Freddie 75–80%, SBA 504 (first mortgage) ~50–65%, USDA B&I 80%.
Loan-to-Cost (LTC): The Construction and Bridge Lender's Metric
LTC is the ratio of the loan amount to the total project cost. LTC = Loan ÷ Total Project Cost. Total project cost includes land, hard construction costs, soft costs, financing costs, and developer fee. A $7.8M construction loan on a $11.2M total project cost is a 69.6% LTC loan. LTC is used when the asset doesn't yet exist (construction loans) or when the property's current value is below its potential stabilized value (bridge loans on value-add deals).
Why LTC Is Usually Higher Than LTV on the Same Deal
In most new construction and value-add scenarios, the stabilized appraised value of the completed project exceeds total cost — that spread is the developer's profit. If a hotel costs $12M to build and stabilize but will be worth $16M at completion, the LTC at 75% is $9M, but the LTV at 75% on the stabilized value would be $12M. LTC is the binding constraint during construction; LTV becomes binding when the project converts to permanent financing. This is why bridge-to-permanent structures are so common: bridge lenders underwrite to LTC, permanent lenders re-underwrite to stabilized LTV.
Practical Sizing Example
| Metric | Value | 70% Loan |
|---|---|---|
| Total project cost (LTC basis) | $11,200,000 | $7,840,000 construction loan |
| Stabilized appraised value (LTV basis) | $15,500,000 | $10,850,000 permanent loan |
| LTC loan vs LTV loan difference | — | $3,010,000 additional proceeds at stabilization |
The additional $3M in permanent loan proceeds vs. the construction loan allows the sponsor to return equity at stabilization — often the key economic event in a development deal.
When does a bridge lender use LTC vs. LTV?
Bridge lenders typically underwrite to LTC when funding a value-add acquisition or construction project, because the "as-is" appraised value of an underperforming property may be below total investment. They use LTV when lending on a stabilized property being refinanced at a near-current value. Some bridge lenders use both metrics simultaneously — sizing to the lower of 75% LTC or 70% as-is LTV — to protect against overpaying on cost without adequate current-value coverage.
First Realty Capital sizes loans using both LTV and LTC simultaneously to find the optimal structure before loan application. Request a loan sizing analysis.
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