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.


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