A borrower can have a strong property, a clear business plan, and a realistic timeline and still run into one important issue:
Leverage that does not line up with the lender’s assessment of risk.
LTV and LTC are two ratios at the center of that conversation.
They answer different questions, and both can influence loan structure and approval.
LTV and LTC: Two Different Lenses on the Same Deal
What is loan-to-value (LTV)?
Loan-to-value compares the loan amount with the value of the collateral.
Depending on the transaction, lenders may consider:
- Purchase price
- As-is appraised value
- Current property value
- As-complete value
What is loan-to-cost (LTC)?
Loan-to-cost compares the loan amount with the project’s total eligible cost.
That can include acquisition and construction or renovation costs, plus certain soft costs depending on the lender.
LTC asks:
How much of the project cost is being financed by the lender?
Why Lenders Care About Both
LTV is about collateral coverage
LTV helps a lender evaluate how much cushion exists between the loan balance and collateral value.
LTC is about execution risk
LTC helps show how much borrower equity is invested relative to the total cost of the project.
Together, LTV and LTC can affect:
- Initial funding
- Draw structure
- Reserve requirements
- Borrower equity
- Documentation
- Overall loan term
Where Borrowers Get Surprised
1. Purchase Price Versus Appraised Value
Buying below market does not necessarily mean the full difference between purchase price and appraised value becomes lendable equity.
The lender may treat some of the difference as additional collateral cushion.
2. As-Is Versus As-Complete Value
A project may look strong based on its expected value after completion.
But future value depends on work that has not yet been completed.
That is why current or as-is value often plays an important role in early advance decisions.
3. Total Project Cost Is Not Fully Defined
LTC becomes difficult to evaluate when a budget lacks detail or support.
A contractor-supported budget can reduce unnecessary back-and-forth
4. Borrower Equity Exists Only on Paper
Anticipated savings, future reimbursements, or planned contributions may not receive the same consideration as committed and verifiable equity.
How LTV and LTC Shape Loan Structure
- Advance Rate at Closing – The initial advance may be tied to acquisition cost and current collateral value.
- Draw Schedule and Controls – Greater execution risk may result in additional inspection, documentation, or draw-control requirements.
- Reserves and Contingencies – A lender may require interest reserves, contingency, or additional liquidity depending on project risk.
- Exit Credibility – Projected leverage at stabilization also needs to support the proposed refinance, sale, or other takeout
How to Present Your Numbers Cleanly
Provide five items clearly:
A. Sources and uses
Show acquisition, construction, soft costs, contingency, reserves, and funding sources.
B. Value basis and assumptions
Identify whether you are relying on purchase price, as-is value, or as-complete value.
C. LTV and LTC calculations
Show the formula, inputs, and results.
D. Borrower equity and liquidity
Identify where borrower equity comes from and demonstrate available liquidity.
E. Timeline and exit
Use realistic assumptions rather than a best-case schedule.
What Enact Partners Looks for
LTV and LTC are only part of Enact’s underwriting process.
We also consider:
- Sponsor experience
- Liquidity
- Collateral
- Project complexity
- Third-party team
- Documentation
- Exit strategy
For Enact, conservative leverage generally means LTVs under 70%, based on current collateral value and the specifics of the transaction.
The appropriate leverage still depends on the property, sponsor, project, and risk profile.
Frequently Asked Questions
What is the difference between LTV and LTC?
LTV compares the loan amount with property value.
LTC compares the loan amount with total project cost.
LTV focuses on collateral coverage, while LTC provides insight into how the project is
capitalized between borrower and lender.
How is LTC calculated?
LTC is:
Loan Amount ÷ Total Eligible Project Cost
For example, a $700,000 loan against a $1 million eligible project cost equals 70% LTC.
Eligible costs vary by lender and transaction.
What LTV does Enact Partners generally look for?
Enact Partners generally targets LTVs under 70%, based on current collateral value and transaction-specific considerations.
LTV alone does not determine approval.
Why does as-is value matter?
As-is value reflects the collateral before the borrower executes the proposed business plan.
Future value may also be considered, but it depends on work and execution that have not yet occurred.
What does borrower equity mean in the context of LTC?
Borrower equity is the portion of eligible project cost funded by the borrower.
Lenders generally place greater weight on equity that is committed and verifiable.
What does Enact Partners consider beyond LTV and LTC?
Enact considers sponsor experience, liquidity, collateral quality, project complexity, third-party team strength, documentation, and exit credibility.
Get a Quick Read on Your Deal Structure
If you want to discuss how your LTV, LTC, and capital stack fit together, Enact Partners is happy to have that conversation.
Submit a loan inquiry at enactpartners.com or call (760) 516-7776.
