Commercial mortgage underwriting
Loan-to-Cost (LTC)
LTC compares the financing amount with the project cost basis recognized for the transaction.
Basic formula
LTC = loan amount ÷ recognized project cost
Educational definitionNo universal lender threshold is implied.
Why it matters in commercial financing
LTC helps describe how much of a project cost is financed versus funded by borrower equity or other capital. Lenders can differ on which costs are eligible and when equity must be contributed.
Important cautions
- Not every budget item is necessarily an eligible cost.
- Cost overruns and contingency matter.
- LTC is different from LTV.
- Draw conditions and equity timing can materially affect the structure.
Discuss a real transaction
Move from the metric to the property and financing objective.
Worked LTC example
Suppose recognized project costs total $4,000,000 and requested financing is $2,800,000. Illustrative LTC is 70%, leaving $1,200,000 to fund from equity or other accepted sources. If costs increase, ask who funds the overrun and whether the existing loan amount changes. A percentage alone does not establish when money becomes available for invoices.
Further reading
Content reviewed September 9, 2026. These resources provide background; individual lender requirements and property circumstances differ. Illustrative calculations are examples, not financing offers.