The Loan-to-Cost (LTC) ratio is a core underwriting metric used in ground-up real estate construction loans, commercial value-add bridge loans, and residential fix-and-flip financing.
Whereas Loan-to-Value (LTV) compares the loan balance to the *completed appraised market value* (or ARV), Loan-to-Cost (LTC) compares the loan amount strictly to the *actual dollar budget spent* to buy the property and complete construction ("Total Project Cost").
Commercial and hard money lenders almost always underwrite using a Dual Constraint ("Lesser Of" Rule) — e.g., lending the lesser of 80% LTC or 70% of ARV. This guarantees that the borrower maintains meaningful "skin in the game" (cash equity contribution) even if the completed project appraises for a high value.