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Loan-to-Cost Ratio

Loan-to-Cost Ratio (LTC) is the loan amount requested to finance a real estate development project over the cost of the project. The LTC ratio is a lending risk assessment that banks and other lenders use before approving a loan for a real estate development project. A higher LTC ratio means a higher perceived risk of the loan. The formula is:

For example, company X needs to borrow $180,000 for a real estate development project costing $2,000,000. In this case, the LTC ratio is 90%. However, the bank requires the property developer to invest 15% at $30,000 which is 85% of the project costs. Since the LTC ratio is higher than the deposit ratio by 5% the loan may be rejected.

Related Topics

  • Loan-to-Value Ratio