How to Calculate LTV and LTC for Commercial Real Estate Loans

If you are financing commercial real estate, two metrics will come up in every conversation with a lender: LTV (Loan-to-Value) and LTC (Loan-to-Cost). Understanding what each means, how to calculate them, and when lenders use one over the other is essential for structuring your deal and maximizing leverage.

What Is LTV (Loan-to-Value)?

Loan-to-Value is the ratio of the loan amount to the appraised market value of the property. It tells the lender how much equity cushion exists in the deal.

LTV = Loan Amount / Property Value

For example:

• You are purchasing a property appraised at $2,000,000
• The lender offers a loan of $1,400,000
• LTV = $1,400,000 / $2,000,000 = 70%

A 70% LTV means the lender is financing 70% of the property’s value, and you are bringing 30% as equity (either cash or existing equity in the property).

What Is LTC (Loan-to-Cost)?

Loan-to-Cost is the ratio of the loan amount to the total project cost. Total project cost includes the purchase price (or land cost) plus all renovation, construction, or development costs.

LTC = Loan Amount / (Purchase Price + Renovation/Construction Costs)

For example:

• You are purchasing a property for $1,000,000
• Renovation costs are $500,000
• Total project cost = $1,500,000
• The lender offers a loan of $1,275,000
• LTC = $1,275,000 / $1,500,000 = 85%

An 85% LTC means the lender is financing 85% of your total project cost, and you are contributing 15% as equity.

When Do Lenders Use LTV vs. LTC?

The choice between LTV and LTC depends on the loan type and the nature of the transaction:

LTV Is Used For:

• Bridge loans — the property already exists and has a determinable market value.
• Stabilized refinances — the property is operating and generating income, so appraised value is the relevant metric.
• DSCR loans — permanent financing on income-producing rental properties.
• Acquisitions without renovations — buying a stabilized property with no planned capital expenditure.

LTC Is Used For:

• Construction loans — the building does not exist yet, so there is no “value” to measure against. Cost is the relevant metric.
• Fix and flip loans — the lender wants to know how much of the total project (purchase + renovation) they are financing.
• Heavy rehabilitation projects — when renovation costs are a significant portion of the total investment.

When Both Apply

Many lenders use both LTV and LTC as dual constraints. For example, a fix and flip lender might offer up to 90% LTC and up to 70% of the After-Repair Value (ARV). The lower of the two calculations determines the actual loan amount. This protects the lender from both overpaying for the project and overlending relative to the completed value.

Typical LTV and LTC Maximums by Loan Type

Here is how maximum leverage typically breaks down across common CRE loan products:

• Bridge loans: Up to 70-75% LTV (as-is value)
• Construction loans: Up to 80-85% LTC
• Fix and flip loans: Up to 85-95% LTC, capped at 70-75% of ARV
• DSCR loans: Up to 75-80% LTV
• Conventional commercial loans: Up to 65-75% LTV

How LTV and LTC Affect Your Deal

Understanding these metrics helps you structure deals more effectively:

• Higher LTV/LTC = less cash out of pocket — but typically higher rates and fees, since the lender takes on more risk.
• Lower LTV/LTC = better terms — more equity in the deal means lower risk for the lender, which translates to lower rates, fewer fees, and faster approval.
• Know your exit — if you plan to refinance into permanent debt, make sure the completed property value supports the LTV requirements of your takeout lender.

Common Mistakes to Avoid

• Confusing LTV and LTC — they are different metrics. A project can have 85% LTC but only 65% LTV if the property value exceeds the cost basis.
• Ignoring the ARV cap — on renovation and construction projects, the ARV cap often limits leverage more than the LTC ratio.
• Underestimating costs — if actual costs exceed your budget, your effective LTC increases and you may need to bring additional equity.
• Not accounting for soft costs — many lenders include closing costs, interest reserves, and other soft costs in the total cost basis.

Get the Right Leverage for Your Deal

At Passy Capital, we help investors and developers structure deals to maximize leverage while keeping terms competitive. Whether you need a high-LTC construction loan or a high-LTV bridge loan, we match your deal with the right lender.

Use our loan calculator to model different scenarios, or submit a deal to get financing options within 24 hours.