Glossary
Loan-to-cost ratio (LTC)
Also called: LTC, loan to cost
Loan-to-cost compares a loan with the total cost of a project or purchase rather than the property's value. In development finance the cost usually includes land, construction, professional fees, contingency and finance costs, and the ratio shows how much of that cost the lender funds.
An example
A developer prepares a budget covering the site, the building contract, consultants and a contingency. The construction lender divides its facility limit by the total budget. The developer funds the balance from equity, a mezzanine lender or both.
Why it matters
Construction lenders often limit their loan by both loan-to-cost and a ratio against the completed value, and whichever is more restrictive applies. Knowing the loan-to-cost figure early tells a borrower how much equity the project needs before any lender is approached.
Points to check
Ask which costs the lender includes in the total, because some include finance costs and contingency while others exclude them. Check whether land value already held counts towards your equity at purchase price or current value. Run the calculation with the lender's definitions so your figure matches theirs, and compare it with the ratio against completed value to see which limit binds.
Try it: LVR and loan-to-cost calculator