Loan-to-Cost Ratio (LTC)

The LTC is used in commercial mortgage financing and multifamily financing. The Loan-to-Cost Ratio can help to determine the amount of debt relative to the cost of purchasing a property, or the total cost of a project as a whole.

Lenders use the LTC ratio as a method to determine the amount they are willing to issue to a borrower which will help them complete their project or finalize the purchase of their house.

Examples of Loan-to-Cost Ratio

There is a universal formula that is used to calculate LTC ratios.

Loan Amount / Total Cost = LTC

Here’s a practical example:

If a borrower wants to purchase a property of $750,000, and the loan amount requested is $450,000, the LTC ratio would then be 60%.

This puts the borrower at 60% equity in the purchase of the property and also gives them the motivation to complete the repayment of the loan or mortgage.

The Max Loan-to-Cost Ratio

Depending on the financial institution, lenders will typically arrange a maximum loan-to-ratio amount and maximum dollar amount.

For our example, the lender could either set an LTC of 60% or $450,000.

If there’s perhaps a chance that the buyer can make up the full amount of $450,000, while still being below 60%, they could then be required to use their personal savings or cash to complete the purchase.

The LTC is used as a way to determine the overall risk for the lender, not so much for the borrower. If a borrower has a lower LTC ratio, the leverage of risk involved is also a lot lower for the lender.

How helpful is this content?

Share this article:

Join a community of 350,000+ members

  • Gain access to unique offerings previously reserved for the ultra-wealthy

  • Customize your portfolio for income, growth, or a balance of both

  • Get started today and earn an average IRR of over 8%

What investors are saying about Yieldstreet

Apr 2022

The due diligence, risk management, and product education materials are thorough, excellent, and easy to use and understand.

Manoj J
Member since 2019
Apr 2022

Excellent and unique selections that I can't find elsewhere.

Jonathan S
Member since 2019
Apr 2022

The platform delivers in a very concise manner. Easy to get a clear understanding at a glance from the web or mobile app.

Tim S
Member since 2021
The testimonials presented on this page have been provided by actual investors in Yieldstreet funds without compensation. Yieldstreet has selected the testimonials, and certain testimonials have been edited to remove personally identifiable information and for brevity. Testimonials were not selected based on objective or random criteria, but rather were selected based on Yieldstreet's understanding of its relationship with the providers of the testimonials. The uncompensated testimonials presented here may not be representative of other investors' experiences, and there can be no guarantee that investors will experience future performance or success consistent with the testimonials presented.

The Yield

Our weekly podcast providing ideas about how to make money work for you and bring you closer to your dreams.

Since inception, over $2.5B has been invested on Yieldstreet

Join today for free to access alternative investment opportunities.