The construction loan down payment is 15% of total project cost at our standard 85% loan-to-cost. What most borrowers do not realize is how much of that 15% the land can cover, and how differently lenders count what goes into the cost.
This page covers how LTC is calculated, what is included in it, how land equity counts toward your contribution, and when a borrower closes with nothing out of pocket.
15% of total project cost. We lend up to 85% of what the project costs to build, and you bring the rest.
“Bring the rest” does not have to mean writing a check. Your contribution can be cash, equity in land you already own, or both. On a $370,000 project, the required contribution is $55,500. If your lot is worth $45,000 and you own it outright, most of that is already covered.
This is part of our ground-up construction loan program.
Loan-to-cost is the loan amount divided by what the project costs. It is the number that sizes a ground-up construction loan.
LTC = Loan amount ÷ Total project cost
Total project cost = land + hard costs + eligible soft costs + interest reserve
A $45,000 lot with a $325,000 construction budget is a $370,000 project. At 85% LTC, the loan is $314,500.
This is the question to ask any lender quoting you a leverage number, because two lenders can both say 85% and mean different amounts of money.
A lender who excludes soft costs from the calculation is quoting a percentage of a smaller number. When you compare offers, ask three things: which costs go into their LTC, how many points they charge, and what their processing and underwriting fees are.
Which soft costs can actually be drawn, and when, is covered on the construction budget and eligible soft costs page.
Two limits apply to every ground-up loan: up to 85% of what the project costs, and up to 75% of what the finished house is worth. Whichever produces the smaller loan is the one that sizes your deal.
Which limit binds tells you something about the project itself. Take the same build, a $45,000 lot and a $325,000 budget, and change only the finished value.
85% of cost is $314,500. 75% of value is $375,000.
The cost limit binds, and the loan is $314,500. There is real room between the cost and the finished value. Healthy project.
85% of cost is still $314,500. 75% of value is $300,000.
Now the value limit binds, and the loan is $300,000. You bring more cash, and the margin between cost and sale price is thinner. Tight project.
A strong project is capped by cost. If your deal is capped by value, that is worth a hard look before you build, not after.
85% of total project cost is our standard. It is what a builder who meets the experience requirement should expect on a normal deal.
Up to 90% is available case by case for highly experienced borrowers. If you have a real ground-up track record, send us the project.
This is where borrowers and lenders talk past each other, because “construction budget” and “project cost” are not the same thing.
We can finance up to 100% of the construction budget. We cannot finance 100% of project cost. At the 85% LTC standard you contribute at least 15% of project cost; at up to 90%, case by case for highly experienced borrowers, at least 10%. When a borrower gets the full budget financed, it is the land equity that makes room for it.
Land you already own counts toward your contribution, and it can cover all of it.
Land is valued at the purchase price, or the appraised value if lower, unless you have owned it for at least 6 months and permitting or subdivision work has been done. Then the appraised value is used, not what you paid. A lot bought at $150,000 three years ago, with permitting work done, and appraised at $250,000 today is $250,000 of equity in the calculation.
That is why builders who land-bank end up with far more leverage than the headline percentage suggests.
More on how we value and finance land is on the land purchase and land equity page, including cash-out against land and what happens when there is an existing mortgage on it.
Yes, when you own the land free and clear.
At closing we advance against the land. Without permits issued, that advance is 60% of land value; with permits in hand it can go to 70%. That money pays your closing costs, and on some deals the borrower leaves the closing table with cash in hand.
The example below is exactly that scenario.
A builder who has owned a lot for three years, free and clear, with permitting work done, building a single family home with no permits issued at closing.
| Land value (owned free and clear for 3 years, permitting work done) | $45,000 |
|---|---|
| Construction budget (includes 5% contingency and soft costs) | $325,000 |
| Total project cost | $370,000 |
| Loan amount at 85% LTC | $314,500 |
| Finished value (ARV) | $500,000 |
| Loan to finished value | 62.9% |
| Day-one advance (60% of land value, no permits issued) | $27,000 |
| Construction holdback | $287,500 |
| Cash to the borrower at closing (after closing costs) | ~$15,000 |
Two things worth reading carefully. The loan is $314,500 against a $325,000 budget, so roughly $37,500 of construction is funded by the borrower over the course of the build. And because the land was owned outright, the day-one advance covered closing costs with about $15,000 left over.
The land carried the equity. No cash went in at closing.
More track record gives access to more leverage. 85% LTC is the standard, and up to 90% is available case by case for highly experienced borrowers.
The full experience standard, including how a general contractor's record can qualify a first-time developer, is on the construction loan requirements page.
15% of total project cost at our standard 85% loan-to-cost. That contribution can come from cash, from equity in land you already own, or from a combination of the two.
Loan-to-cost is the loan amount divided by the total cost of the project. Total project cost is the land plus the construction budget plus eligible soft costs and the interest reserve. On a $370,000 project, an 85% LTC loan is $314,500.
LTC measures the loan against what the project costs. LTV, or loan to after-repair value, measures it against what the finished house is worth. Both apply: up to 85% of cost and up to 75% of finished value. Whichever produces the smaller loan is the one that sizes your deal.
Yes. 85% of total project cost is our standard leverage for builders who meet the experience requirement.
Yes, case by case, for highly experienced borrowers. 85% LTC is the standard.
We can finance up to 100% of the construction budget, but not 100% of total project cost. Project cost includes the land; the construction budget does not. The equity in your land is usually what makes the full budget financeable.
Yes. Land is valued at the purchase price, or the appraised value if lower, unless you have owned it for at least 6 months and permitting or subdivision work has been done. Then the appraised value is used. That equity can cover your entire required contribution.
It happens when you own the land free and clear. The day-one advance against your land can cover your closing costs, and in some cases you leave the closing table with money in hand.
No. Closing costs, points, the processing fee, taxes and insurance are not part of total project cost, and they are not financed. Ask any lender quoting you a leverage number which costs they are counting.
More track record gives access to more leverage. 85% LTC is the standard, and up to 90% is available case by case for highly experienced borrowers.
Send us the lot and the budget. We will size it today.