LTC

LTC stands for Loan-to-Cost ratio. It's the loan amount as a percentage of the total project cost, typically used in construction loans, fix-and-flip financing, and BRRRR acquisition + rehab loans.

While LTV measures loan against property value, LTC measures loan against your actual capital outlay. The two ratios serve different purposes and are commonly used together in rehab and construction lending.

How LTC is calculated

LTC = Loan Amount ÷ Total Project Cost

Total project cost = Purchase price + Rehab budget + Holding costs + Closing costs

Example: A $200,000 purchase + $40,000 rehab + $5,000 holding + $5,000 closing = $250,000 total cost. A $200,000 loan = 80% LTC.

LTC vs. LTV

The two ratios measure different things:

• LTV: Loan ÷ as-is or after-repair property value. Measures lender's exposure relative to collateral.
• LTC: Loan ÷ total invested capital. Measures lender's exposure relative to your project economics.

Most rehab and construction loans use both ratios with caps:

• "80% LTC, capped at 75% of ARV" = the lender will fund up to 80% of your costs OR 75% of ARV, whichever is lower.

If your project costs $250K and ARV is $320K:

• 80% LTC = $200K
• 75% ARV = $240K
• Loan amount = $200K (lower of the two)

If your costs are $250K but ARV is only $290K:

• 80% LTC = $200K
• 75% ARV = $217.5K
• Loan amount = $200K (still LTC-constrained — ARV is comfortable)

How LTC is structured in fix-and-flip / BRRRR loans

Most lenders structure LTC as separate caps for purchase and rehab:

• Purchase financing: 80-90% of purchase price
• Rehab financing: 100% of rehab costs (paid in draws as work completes)
• Combined cap: Total loan ≤ 75% of ARV

This structure means you're typically out of pocket 10-20% of purchase + 0% of rehab + closing/holding costs. The lender funds the rest, including the entire rehab budget paid in scheduled draws after work inspection.

Why LTC matters for investors

It determines actual cash needed. 80% LTV on a $250K project says you can borrow $200K. But how much cash do you need? That depends on LTC. If 80% LTC also limits to $200K, you need $50K cash. If LTC is more aggressive (90%), you may need only $25K.

It identifies whether the deal pencils on cash invested. Higher LTC = lower cash invested = higher leverage = potentially higher cash-on-cash return on the deployed capital.

It signals lender confidence. Lenders offering 90%+ LTC programs are more aggressive and often charge higher rates/points to compensate. Lenders capping at 75% LTC are more conservative.

What's a good LTC?

Common ranges:

• 65-75% LTC: Conservative. Standard on construction loans. Borrower has significant skin in the game.
• 80-85% LTC: Standard for fix-and-flip programs. Borrower invests 15-20% of project cost.
• 90-95% LTC: Aggressive. Reserved for experienced flippers with track record. Higher rates/points.
• 100% LTC: Rare and tightly underwritten. Usually requires partner equity or seller financing on the gap.

Rate Hero's take

For BRRRR and fix-and-flip investors, we structure loans with both LTC and ARV caps so you know exactly what you're qualifying for. If your deal is constrained by LTC (low cost relative to ARV), we'll show you that. If it's constrained by ARV (limited resale value), we'll flag that too. The right structure depends on which constraint is binding — and that affects how much cash you actually need at closing.