Construction lenders don’t underwrite against a property’s value the way a purchase-money mortgage does — a ground-up project has no established value yet, so lenders instead compare the loan to the total cost of building it.
How it works
Dividing the loan amount by the total project cost (land, hard costs, and soft costs combined) gives the loan-to-cost ratio.
What this does not include
This does not include the loan-to-value ratio lenders typically check separately against the project’s projected completed value — a construction loan often has to satisfy both an LTC cap and a separate LTV cap on the finished project.
How to use this calculator
- Enter the loan amount and total project cost.
Frequently asked questions
What’s a typical maximum LTC ratio?
Commonly in the 65%-80% range, varying by project type, borrower experience, and market conditions, with the borrower expected to fund the remainder as equity.
Why would a lender care about LTC if LTV is also checked?
LTC ensures the borrower has real skin in the game during the riskiest phase — construction — when the finished value (and thus LTV) isn’t yet realized or provable.
Does LTC apply to renovation loans too?
Yes — the same total-project-cost logic applies to substantial renovation or rehab loans, not just ground-up new construction.
