LTC is used when there are significant construction or renovation costs beyond the purchase price. It helps lenders determine how much of the total project they are financing.
LTC = Loan Amount ÷ (Purchase Price + Rehab Cost) × 100
Example: $140,000 loan on a $100,000 purchase + $60,000 rehab = $160,000 total cost → LTC = 87.5%. Most hard money lenders cap LTC at 80–90% while keeping LTV (based on ARV) at 65–75%.
LTC differs from LTV in that LTV uses the appraised value (current or ARV), while LTC uses actual cost outlay.