The risks associated with Loan-to-Cost Ratio (LTC) are related to the amount of leverage used in the financing. The higher the leverage, the higher the risk. Commercial mortgage lenders use the LTC ratio as a factor to determine risk in a deal. If the LTC ratio is too high, the lender may not approve the loan or may require additional collateral or a higher interest rate to offset the risk. (Source)
In terms of HUD multifamily loans, LTC can also affect the amount of equity that must be contributed by the borrower. If the LTC ratio is too high, the lender may require the borrower to contribute more equity to the project. (Source)