Loan-To-Cost Ratio - LTC

AAA

DEFINITION of 'Loan-To-Cost Ratio - LTC'

A ratio used in commercial real estate construction to compare the amount of the loan used to finance a project to the cost to build the project. If the project cost $1 million to complete and the borrower was asking for $800,000, the loan-to-cost (LTC) ratio would be 80%. The costs included in the $1 million cost figure would be land, construction materials, construction labor, professional fees, permits and so on.

INVESTOPEDIA EXPLAINS 'Loan-To-Cost Ratio - LTC'

The LTC ratio helps commercial real estate lenders assess the risk of making a construction loan. The higher the LTC ratio, the higher the risk. A similar, commonly used metric, the loan-to-value ratio, compares the amount of the loan to the fair-market value of the project.



RELATED TERMS
  1. Construction Mortgage

    A loan borrowed to finance the construction of a home and typically ...
  2. Construction Spending

    An economic indicator that measures the amount of spending towards ...
  3. Loan

    The act of giving money, property or other material goods to ...
  4. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  5. Loan-To-Value Ratio - LTV Ratio

    A lending risk assessment ratio that financial institutions and ...
  6. Commercial Real Estate

    Property that is used solely for business purposes. Examples ...
RELATED FAQS
  1. Why would you use the TTM (trailing twelve months) rather than the data from the ...

    Public companies report their yearly financial statements along with an annual report. However, financial professionals are ... Read Full Answer >>
  2. Why is it important for an investor to understand business accounting?

    Investors use financial statements to obtain valuable information used in valuation and credit analysis of companies. Therefore, ... Read Full Answer >>
  3. What are the business consequences of using FIFO vs. LIFO accounting methods?

    If a company uses a first-in, first-out accounting method (FIFO), it's likely that its reported earnings will be higher than ... Read Full Answer >>
  4. How do you analyze inventory on the balance sheet?

    In accounting, inventory represents a company's raw materials, work in progress and finished products. Financial professionals ... Read Full Answer >>
  5. How are contingent liabilities reflected on a balance sheet

    Contingent liabilities need to pass two thresholds before they can be reported in the financial statements. First, it must ... Read Full Answer >>
  6. How do businesses determine if an asset may be impaired?

    In the United States, assets are considered impaired when net carrying value (book value) exceeds expected future cash flows. ... Read Full Answer >>
Related Articles
  1. Home & Auto

    7 Steps To A Hot Commercial Real Estate Deal

    For savvy real estate investors, times of lower prices reveal investment opportunity.
  2. Entrepreneurship

    Find Fortune In Commercial Real Estate

    Investing in big buildings means big money - and bigger risks.
  3. Options & Futures

    Defeasance Reduces Commercial Real Estate Fees

    Try this alternative to short-term variable-rate financing when using leverage to buy property.
  4. Credit & Loans

    How To Increase Your Appeal To Prospective Lenders

    Making a business eligible for loans/credit cards at the best possible rates requires crafting an excellent credit profile through the smart use of credit.
  5. Fundamental Analysis

    What is Quantitative Analysis?

    Quantitative analysis refers to the use of mathematical computations to analyze markets and investments.
  6. Economics

    Explaining Residual Value

    Residual value is a measurement of how much a fixed asset is worth at the end of its lease, or at the end of its useful life.
  7. Investing

    REITs 101: How They're Regulated

    Here's everything you need to know about REITs in less than five minutes.
  8. Professionals

    Real Estate Advice for Recent Retirees

    What retirees need to consider when it come to making real estate decisions.
  9. Fundamental Analysis

    Why Last In First Out Is Banned Under IFRS

    We explain why Last-In-First-Out is banned under IFRS
  10. Investing News

    Investing Early In The Future of Data Security

    Data breaches are becoming increasingly common. Among the foremost technologies paving the path for the future of data security is biometrics.

You May Also Like

Hot Definitions
  1. Geometric Mean

    The average of a set of products, the calculation of which is commonly used to determine the performance results of an investment ...
  2. Fisher Effect

    An economic theory proposed by economist Irving Fisher that describes the relationship between inflation and both real and ...
  3. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  4. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  5. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  6. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
Trading Center