What loan to cost means for a construction loan
Loan to cost (LTC) is the construction loan divided by the total project cost: land or lot, hard costs such as labor and materials, and soft costs such as permits, design and contingency. A $1,500,000 loan on a $1,950,000 project is 76.92% loan to cost, so you contribute the other 23.08%, or $450,000.
Lenders set a maximum loan to cost, which varies with the lender, borrower and project, along with a maximum loan to ARV. Treat the percentages here as editable illustrations and use the limits in your own term sheet.
Two limits: cost and ARV
A construction lender applies both a loan-to-cost limit and a loan-to-ARV limit, and you can borrow no more than the lower result. If costs are high compared with the finished value, the ARV limit sets the cap; otherwise the cost limit does. The calculator shows what each limit allows and the lower figure.
Worked example: a $1.95 million project
A project has a $450,000 lot, $1,350,000 of hard costs and $150,000 of soft costs and contingency, so the total cost is $1,950,000. The as-completed value is $2,800,000 and you ask for $1,500,000. That is 76.92% loan to cost and 53.57% loan to ARV.
An 80% loan-to-cost limit allows up to $1,560,000, and a 70% loan-to-ARV limit allows $1,960,000, so the lower, cost-based $1,560,000 is the most available. Your cash needed for the $1,500,000 loan is $450,000, and the least the limits allow is $390,000. If you asked for $1,700,000, loan to cost would be 87.18%, above the 80% limit.
What counts as cost, and what this page leaves out
Lenders define cost differently. Some include only land and construction, others add soft costs, contingency and interest reserve. This calculator uses the costs you enter and leaves interest out, matching the loan to cost on the construction loan calculator. It does not model appraisals, draw schedules or borrower underwriting, and it is not a loan approval.
To add interest, points and profit after finance, use the US construction loan calculator .
If the loan also buys the land, use the US acquisition and construction loan calculator .
Use the right country page
This page stays in US dollars and uses US terms: lot cost, hard and soft costs and ARV. The country choices above the inputs open separate local pages. Choosing United Kingdom opens the UK development loan to cost calculator, which uses GDV and professional fees. The inputs reset and amounts are not converted.
Inputs for the construction loan to cost calculator
Land or lot cost
What you pay for the land or lot, before finance costs.
Hard construction costs
Labor and materials for the whole build, before finance costs.
Soft costs and contingency
Permits, design, fees and contingency the lender counts as cost.
As-completed value (ARV)
Expected value of the finished project.
Loan you are asking for
The total construction loan in your term sheet, including any land funding.
Lender's maximum loan to cost
The lender's cost-based limit. The 80% shown is only an illustration.
Lender's maximum loan to ARV
The lender's value-based limit. The 70% shown is only an illustration.
CALCULATOR QUESTIONS
US construction loan to cost calculator questions
How do you calculate loan to cost on a construction loan?
Divide the loan by the total project cost and multiply by 100. $1,500,000 divided by $1,950,000 is 76.92%.
What loan to cost do construction lenders offer?
It varies with the lender, borrower and project, so use the limit in your own term sheet rather than a typical figure.
What is the difference between loan to cost and loan to ARV?
Loan to cost compares the loan with what the project costs. Loan to ARV compares it with the finished value. Lenders usually apply both and use the lower.
Is interest part of the cost?
Some lenders count the interest reserve as a cost and some do not. This calculator uses only the costs you enter, so add the reserve if your lender includes it.
What happens when I change country?
The United Kingdom option opens the separate UK development loan to cost page, in pounds, with GDV and professional fees. Your inputs are reset rather than converted.