Construction lending uses a different denominator from every other kind of real estate loan, and misreading it is the most common reason a sponsor's numbers and a lender's numbers do not agree.
LTC, LTV and ARV are three different things
- LTC — loan to cost. The loan divided by the total cost to complete: land plus hard costs plus soft costs. This is the primary constraint on a construction facility.
- LTV — loan to value. The loan divided by the property's value today, as it stands. On a vacant lot that number is small and not very informative.
- ARV — after-repair or as-completed value. The appraised value the finished project is expected to support. Lenders usually test against this as a secondary constraint.
A construction loan is typically sized to the lesser of an LTC ceiling and an ARV ceiling. Hitting one does not get you past the other.
Key takeaways
- LTC is measured against total project cost — land, hard costs and soft costs — not against the finished value.
- Financing up to 90% LTC means the sponsor's equity is roughly 10% of total cost, and the lender will expect to see that equity actually in the deal.
What counts as “cost”
Land or acquisition cost, hard construction costs, and soft costs — architectural and engineering fees, permits and impact fees, insurance, interest reserve, and contingency. A budget that omits contingency and interest reserve is not a budget a lender will fund against; those two lines are what keep a project from stalling at 80% complete.
How draws work
A construction loan does not fund in a lump sum. Land or acquisition typically funds at close; construction funds are released in draws against verified progress. A typical cycle: the contractor submits a draw request against the schedule of values, an inspection confirms the work in place, lien releases are collected for the prior draw, and funds are released — often with a retainage held back until completion.
Two practical consequences. First, you carry each phase before you are reimbursed for it, so working capital matters as much as the loan. Second, clean documentation speeds draws; a sponsor whose draw packages are complete gets paid faster than one whose are not.
What a 90% LTC file actually needs
The top of the range is available, but it is earned. At US Lending & Company we fund up to 90% of loan-to-construction-cost and up to $75 million. A file that reaches the top of that range generally shows a sponsor with completed projects of comparable scope, a contractor with a real balance sheet, a permitted or near-permitted set of plans, a budget with genuine contingency, and an exit — sale or refinance — that the finished value supports comfortably.
The completion problem, and how a converting loan solves it
Traditional construction financing creates a cliff: the loan matures at completion, and the sponsor has to refinance exactly when the project is newest and least seasoned. Financing that converts into a permanent, low-interest loan when construction completes removes that scramble, because the takeout was underwritten at the same time as the build.
This is not investment or construction-management advice. Every project is underwritten on its own facts — call (800) 943-1314 to talk through a specific budget.
Published by the US Lending & Company underwriting desk. General information only — not legal, tax or investment advice. NMLS #244778 · DRE #01516868.