What is Loan-to-Cost Ratio (LTC)?

Loan-to-Cost Ratio (LTC) and the HUD 221(d)(4) Loan Program

Loan-to-cost ratio, or LTC, compares a project’s financing to the cost of construction. For example, if it costs $750,000 to purchase land, and another $1 million to construct an apartment building, and a developer is attempting to get a loan for $1.5 million, the LTC would be:

$1.5 million/($750,000 + $1 million) = 85% LTC

In contrast, a similar metric, loan-to-value ratio (LTV), compares a project’s financing to its estimated market value. So, in the same example above, if the property were worth $3 million, the LTV would be:

($750,000 + $1 million)/$3 million = 58% LTV

Overall, LTC and LTV are some of the most important metrics that lenders use to approve HUD multifamily loans like the HUD 221(d)(4) loan.

To learn more about HUD multifamily construction loans like the HUD 221(d)(4) loan, fill out the form below and a HUD lending expert will get in touch.