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The Difference Between Loan-to-Cost and Loan-to-Value

By February 24, 2021June 29th, 2023Blog, Hard Money Lenders
Hard Money Loans in Los Angeles

When you apply for a hard money loan, it is important to understand some of the key terms and metrics utilized by hard money lenders in Los Angeles – the difference between loan-to-cost and loan-to-value. Let’s explore.


Loan-to-cost is a metric in commercial real estate that measures the ratio between the total loan amount and total cost of the real estate project. The relevant cost for a project will typically be either construction expenses or the purchase price to secure the property. Here is an example of how loan-to-cost works – you are seeking a $7,000 hard money loan for a $10,000 construction project. The loan to cost for this $10,000 construction project with $7,000 in financing is approximately 70 percent ($7,000 divided by $10,000).


Loan-to-value is a metric in commercial real estate that measures the ratio between the total loan amount and fair market value of the real estate project. For example, a loan to value for a property that is worth $200,000 and a loan of $150,000 has a loan-to-value of 75 percent (150,000 divided by 200,000).

The Metric Used by Hard Money Lenders

Hard money lenders in Los Angeles and elsewhere in California use both loan-to-cost and loan-to-value to help assess risk. It is important to understand that the higher the percentage, the higher the risk to the lender.

Understanding the Difference

The key difference between loan-to-value and loan-to-cost comes into play if you are attempting to purchase a property at a significant discount.  For example, let’s say Property A is purchased for $100,000, but it has a fair market value of $150,000.  A loan for $90,000 for the purchase represents a 90 percent loan to cost, which many hard money lenders will avoid due to the significant risk. However, if that same deal is assessed using loan-to-value, the risk is 60 percent. As a result, a lender using a loan-to-value analysis will likely view the deal as a relatively safe investment opportunity.

If you are applying for a hard money loan to help cover the cost of securing a fix-and-flip property, the distinction between loan-to-value and loan-to-cost is apparent.For example, on raw numbers alone, a lender using a loan-to-cost analysis will likely show a ratio well above 65 percent in virtually every hard money loan for a fix-and-flip project, which indicates a high risk that most hard money lenders would want to avoid. Hence, you should try to find a hard money lender who utilizes the loan-to-value assessment for a fix-and-flip project. Why? Because the risk ratio will generally be much lower when basing the numbers on loan-to-value.

Interested in Working with a Hard Money Lender in Los Angeles? Contact PB Financial Group Today

If you are looking to secure a hard money loan for a real estate venture, take action by contacting PB Financial Group today. PB Financial Group is a premier direct hard money, private money and bridge lender, who has been providing quick funding since 2006 and have funded over 2700 hard money/private money loans. Our objective is to work to satisfy your financing needs on important real estate projects throughout California in an efficient and effective manner. To schedule a consultation please contact PB Financial Group at 877.700.3707 or visit for further information.

PB Financial NMLS #357614/DRE #01522495

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