Loan-to-Cost vs. Loan-to-Value: The Ratios That Decide Your Construction Approval

If you’ve ever sat in a lender’s office wondering why your construction budget looks solid but your loan size keeps getting trimmed, you’ve probably met the twin gatekeepers: Loan-to-Cost (LTC) and Loan-to-Value (LTV). These ratios decide how much your lender will actually advance—no matter how excited they are about your plan. I’ve been on calls where a developer swore they needed 80% financing because “the comps are there,” only to find the cost stack or appraisal killed the deal. Let’s unpack the real-world math, how lenders think, and how you can shape your project to get the approval—and the loan amount—you need.

What lenders are actually solving for

Lenders care about two things during construction:

• Cost risk: What if your project goes over budget?
• Collateral risk: What if the finished property isn’t worth what you think?

LTC addresses cost risk by capping the loan as a percentage of your total project cost. LTV addresses collateral risk by capping the loan as a percentage of the “as-completed” value. Whichever cap is lower becomes your real loan limit.

Think of LTC as a control on how much skin you keep in the game during the messy build phase, and LTV as a control on how much protection the lender has if they need to take the property back and sell it.

Quick definitions, clean formulas

• Loan-to-Cost (LTC)
• Formula: Loan Amount / Total Project Cost
• Total Project Cost typically includes: land (purchase or entitled basis), hard costs, soft costs (design, permits, engineering, legal), contingency, interest reserve, lender fees, and sometimes builder’s fee.
• Purpose: Controls how leveraged you are relative to what it will actually cost to build.

• Loan-to-Value (LTV)
• Formula: Loan Amount / As-Completed Appraised Value
• As-Completed Value is based on the appraisal as if the project were finished today, using the cost approach, sales comparison approach, and (for income property) income capitalization approach.
• Purpose: Ensures the collateral will cover the loan if something goes sideways.

• The governing rule in real underwriting:
• Maximum Loan Amount = min(Max LTC × Total Cost, Max LTV × As-Completed Value)
• And on income properties, the “min” often includes a third constraint: Debt Service Coverage Ratio (DSCR).

Typical lender limits you’ll actually see

These ranges vary by market, borrower experience, and loan type, but they’re a good starting point:

• Owner-occupied one-time close (construction-to-perm):
• LTC: 80–90% of cost is common for strong borrowers with good credit and stable income; some programs go higher with mortgage insurance.
• LTV: Often 80–90% of as-completed value, subject to program caps and appraisal.

• Spec homes and small residential developments (bank):
• LTC: 70–80%
• LTV: 65–75% of as-completed value

• Small multifamily (bank, build-to-rent):
• LTC: 65–80%
• LTV: 65–75%, plus DSCR at stabilization (1.20–1.30x typical bank target)

• Private lenders / debt funds:
• LTC: 75–85% (sometimes higher with strong sponsors)
• LTV: 65–75%
• Rates higher; faster approvals; more flexible on experience and property type

• Heavy rehab / value-add:
• LTC measured against “total project cost” including rehab; sometimes lenders look at LTV against ARV (after-repair value)
• Contingency requirements are higher (10–15% of hard costs)

• Land + horizontal development:
• Lower leverage across the board; LTC and LTV are often 50–65% due to entitlement and market risk.

Rates and fees vary widely. As a rough snapshot from deals I’ve seen in 2024–2025:

• Bank construction pricing often lands around Prime + 1–3% (commonly 8.5–11% all-in during this rate cycle), 0.5–1.5% origination, with interest-only during construction.
• Private lenders often 10–13% interest with 2–4 points up front and faster draws.

A simple way to see how LTC and LTV fight each other

Let’s run a clean example you can reuse.

• Land (owned): $350,000
• Hard costs (GC contract): $1,050,000
• Soft costs (architect, permits, engineering, legal): $120,000
• Contingency: $95,000 (about 8% of hard costs)
• Interest reserve + fees: $85,000
• Total Project Cost (TPC): $1,700,000

As-completed appraised value: $2,100,000

Lender’s max leverage policy: 75% LTC, 70% LTV

• LTC cap: 0.75 × $1,700,000 = $1,275,000
• LTV cap: 0.70 × $2,100,000 = $1,470,000

Your loan will be limited to $1,275,000 because that’s the lower cap. Investors often want to argue value. Doesn’t matter—your cost stack is the binding constraint.

Now the opposite:

• If your costs were $1,500,000 with the same value:
• LTC cap: 0.75 × $1,500,000 = $1,125,000
• LTV cap: 0.70 × $2,100,000 = $1,470,000
• LTC still binds.

Or if the appraisal comes in light at $1,800,000:

• LTC cap: 0.75 × $1,700,000 = $1,275,000
• LTV cap: 0.70 × $1,800,000 = $1,260,000
• Now LTV binds. The loan drops to $1,260,000 even though your costs didn’t change. That’s why experienced builders care about comp selection and appraisal prep as much as their budget.

What’s actually in “Total Project Cost”

Every lender has a slightly different definition, but here’s the typical eligible cost stack:

• Land: purchase price or current basis (if owned), sometimes reduced by excessive appreciation if the lender thinks you overpaid
• Hard costs: GC contract, site work, utilities, foundation, framing, MEP, finishes, landscape
• Soft costs: architecture, structural, civil, geotech, permits/impact fees, consulting, surveys, insurance
• Contingency: generally 5–10% for ground-up, 10–15% for renovations
• Interest reserve: monthly interest during construction; lenders like to see this built into the sources/uses
• Lender costs: origination, appraisal, inspections, title, legal
• Builder’s fee: often allowed (2–8% of hard costs) for third-party GC; if self-performing, lenders scrutinize this
• Developer fee: some lenders cap or exclude it from LTC eligibility unless it’s a larger commercial project

Not typically included or limited:

• Furnishings, decor
• Excessive marketing costs
• Unverified “sweat equity” or unbilled labor
• Off-site improvements not tied to entitlements

Tip: Ask for your lender’s “costs eligible for advance” list before finalizing your budget. I’ve seen approvals crater because half the soft costs weren’t eligible under the lender’s policy.

How appraisers get to “as-completed value”

Appraisers don’t just take your pro forma and nod. They triangulate:

• Sales comparison approach: Value based on new-construction comps, adjusted for location, size, design, quality, and market conditions. In residential, this often carries the most weight.
• Cost approach: Land value + depreciated replacement cost. Useful when comps are thin.
• Income approach: For rentals, value = Net Operating Income / Cap Rate. Essential for multifamily or build-to-rent.

What moves the needle:

• Plan quality and finishes matching comps
• Lot location (schools, traffic, sightlines)
• Energy efficiency or certifications (HERS, Energy Star) can add perceived value in some markets
• Garage count, bedroom/bath mix, outdoor space
• For rentals: realistic rents, supported by market surveys; expense assumptions appraisers accept

Common friction points:

• Over-improvement for the area (you love quartzite and accordion doors; buyers might not pay for them)
• Thin comp pools for unique designs
• Unrealistic rent growth or expense ratios
• Incorrect land valuation when the site was bought years ago

Who gets paid first during draws

Most lenders want to see your equity go in early. Two common structures:

• Equity-first: You fund initial invoices until your equity is exhausted; then the loan funds.
• Pro-rata: Lender and borrower fund each draw proportionally. Often used with private lenders or strong sponsors.

Ask which method your lender uses. Equity-first can crunch your short-term cashflow if your trades front-load deposits.

Real scenarios that show how LTC and LTV decide your deal

Scenario 1: Custom home, lot owned, friendly bank

• Existing lot basis (owned free and clear): $300,000
• Hard costs: $900,000
• Soft costs: $110,000
• Contingency: $72,000 (8% of hard)
• Interest reserve + fees: $68,000
• Total Cost: $1,450,000
• As-completed appraisal: $1,850,000

Lender policy: 80% LTC, 75% LTV (owner-occupied, one-time close).

• LTC cap: 0.80 × $1,450,000 = $1,160,000
• LTV cap: 0.75 × $1,850,000 = $1,387,500

Loan is capped at $1,160,000 by LTC. Your equity requirement is $290,000 ($1.45M cost − $1.16M loan), but notice you already “own” $300,000 of land. Many lenders give “land equity credit” toward your required equity—as long as your lot basis is accepted. In this case, your land equity alone covers the equity requirement. Out-of-pocket during construction could be minimal beyond contingencies or overages.

What if the appraisal came in at $1,650,000?

• LTV cap becomes 0.75 × $1,650,000 = $1,237,500
• LTC still binds at $1,160,000. You’re safe on value but still constrained by cost.

Pro tip: When your land equity covers your required cash, don’t assume you can withdraw equity during construction. Most lenders won’t let you cash-out until you convert to perm financing after completion.

Scenario 2: Small multifamily, DSCR becomes the hidden limiter

• 8-unit build-to-rent
• Land: $600,000
• Hard costs: $3,250,000
• Soft: $420,000
• Contingency: $260,000
• Interest reserve + fees: $220,000
• Total Cost: $4,750,000
• As-completed value from appraisal (income approach mainly): $5,500,000

Lender policy: 75% LTC, 70% LTV. Bank will roll to a perm loan at stabilization, needs min DSCR 1.25x at stabilized rates.

Stabilized pro forma:

• Gross scheduled rent: $890,000/year
• Vacancy/credit: 5% → $845,500 EGI
• Operating expenses (taxes, insurance, maintenance, management, reserves): $420,000
• Net Operating Income (NOI): $425,500

Ratio caps:

• LTC cap: 0.75 × $4,750,000 = $3,562,500
• LTV cap: 0.70 × $5,500,000 = $3,850,000

Purely on LTC/LTV, the loan could be $3,562,500. But can it DSCR?

If the perm loan rolls at, say, 7.25% interest, 30-year amortization (illustrative), the annual debt service on $3,562,500 would be roughly $292,000–$301,000. DSCR = $425,500 / $297,000 ≈ 1.43x. That clears 1.25x. Great.

If rates move up 100 bps at takeout or expenses run higher, DSCR could compress. Many banks will size construction loans to what the perm can support at conservative interest rate and expense assumptions. In hot rate environments, DSCR becomes the unspoken third gate.

Lesson: For income property, bring a realistic stabilized underwriting pack. Ask the lender what “underwritten” rent, vacancy, expenses, and rate they’ll use.

Scenario 3: Heavy rehab flip, ARV sensitivity bites

• Purchase price (distressed triplex): $500,000
• Rehab budget: $450,000
• Soft costs: $60,000
• Contingency: $67,500 (15% hard costs)
• Carry + fees: $42,500
• Total Cost: $1,120,000
• After-repair value (ARV): $1,350,000 (projected)

Hard money lender policy: 80% of cost, 70% of ARV.

• LTC cap: 0.80 × $1,120,000 = $896,000
• LTV cap: 0.70 × $1,350,000 = $945,000
• Loan sizes to $896,000 (LTC binds).

If the appraisal trims ARV to $1,250,000:

• LTV cap: 0.70 × $1,250,000 = $875,000
• Now LTV binds, cutting your loan by $21,000. That might sound small, but if you planned equity tightly and vendors demand deposits, that $21,000 gap can blow your schedule.

Mitigations:

• Lock rehab bid with a bonded GC and a scope that appraisers can evaluate cleanly.
• Provide competitive comps with matched bed/bath, quality, and neighborhood boundaries.
• Be conservative on contingency and carry—both often run light.

How contingency, interest reserve, and builder fees impact leverage

Lenders like seeing contingency because it reduces risk, but it can shrink your loan by inflating your total cost if LTC is the binding metric. The trick is to balance realism with strategy.

• Contingency
• Ground-up: 5–10% of hard costs is common; I prefer 8–10% for first-time GC-client pairings.
• Renovations: 10–15% because surprises always show up behind walls.
• Lenders typically include contingency in cost and allow draws against it once overages or approved changes happen.

• Interest reserve
• Lenders often require an interest reserve sized to the scheduled draw curve. For a 12-month build at 9–11% interest rates, I’m commonly seeing $60,000–$150,000 on smaller projects.
• Modeling tip: Don’t flat-line it. Interest accrues on drawn funds. Front-loaded hard costs raise early interest.

• Builder and developer fees
• If you’re using an independent GC, a builder’s fee is expected and eligible.
• If you’re self-performing as an owner-builder, many banks will slash or exclude the fee in eligible costs and reduce max LTC.
• Developer fee treatment varies. For small residential, expect limits.

Strategic move: If LTC binds and your equity is tight, negotiate certain soft costs to be paid outside of eligible costs (or post-close) only if your cash flow supports it. Conversely, if LTV binds and you need to reduce cash-to-close, folding more eligible items into the cost basis can increase the eligible loan size up to the LTV cap.

The appraisal playbook: how to help without overstepping

You can’t pressure the appraiser, but you can make their job easier.

• Provide a clean, professional package:
• Final plans and elevations
• Detailed spec sheet with finishes and mechanical systems
• Site plan, surveys, geotech if relevant
• GC contract, schedule of values, construction timeline
• A comp packet: 5–8 recent, nearby, similar new-construction sales with maps and notes on adjustments
• For rentals: rent roll assumptions, market rent comps, expense breakdown, and any pre-leasing

• Think like an appraiser:
• Do your comps match size, bed/bath, quality, and location boundaries?
• If your design overreaches the neighborhood, bring paired sales that back the premium or dial back costly choices with weak ROI.

• Ask for an appraisal reconsideration only when justified:
• Missing or incorrect comps
• Major factual errors (square footage, lot size, garage)
• Unsupported adjustments

I’ve seen value swing 5–10% just by tightening comp selection and presenting a credible package.

Owner-builder vs. third-party GC

• Owner-builder:
• Banks will often require more equity, cut LTC, or decline unless you have strong experience.
• Private lenders are more flexible but will price the risk.
• Funds control and inspections are stricter; they may require a construction manager.

• Third-party GC:
• Expect to provide GC license, insurance endorsements, W-9, work-in-progress list, and references.
• A bonded GC can improve the lender’s comfort and, in some cases, marginally improve your leverage.

Draw process, inspections, and timing

• Draw frequency: Monthly is standard; some lenders allow bi-weekly.
• Inspections: 2–5 business days after a draw request. Private lenders may move faster.
• Retainage: 5–10% withheld until milestones or completion.
• Lien waivers: Required for each draw. Partial waivers for progress payments; final waivers at closeout.
• Change orders: Must be approved; if they deplete contingency, expect questions about funding sources.

Tip: Keep your schedule of values detailed. Vague line items lead to inspection disputes and slow draws. I’m a fan of breaking down major trades and tracking percent complete visually in the field.

When LTC and LTV clash with reality: market shifts and overruns

• Cost overrun pressure:
• A 10% hard cost overrun on a $1,000,000 build increases total cost by $100,000. On a 75% LTC constraint, your max loan increases $75,000—only if you still fit under LTV. If LTV already binds, you’re covering the full overrun in cash.

• Value erosion pressure:
• If comparable sale prices drop 5% during your build and your ARV goes from $2,000,000 to $1,900,000, a 70% LTV cap drops by $70,000. That shortfall might hit your final draws or force more cash into the deal.

• Dual squeeze:
• Worst case: costs up 10%, values down 5%. Your equity plug mushrooms. Include a cushion in your sources—don’t assume you’ll value-engineer your way out under pressure.

Risk control best practices I’ve learned to rely on:

• Bid early and lock critical materials when feasible.
• Add escalation clauses fairly so trades stay whole; it keeps your job staffed.
• Keep contingency intact as long as possible; don’t burn it on “nice-to-haves.”
• Build an optional scope list you can cut if the appraisal is light.
• Track market comps monthly during the build; if values slide, adjust strategy early.

Structuring your deal when ratios are tight

If LTC or LTV caps your loan too low for comfort, here are practical ways to rebalance:

• Improve LTC by lowering eligible costs:
• Value-engineer materials and finishes that don’t move appraisal value (tile choices, plumbing trim).
• Rebid key trades to close bid spreads; I’ve shaved 3–7% on total hard costs by rebidding electrical/HVAC with a standardized scope.
• Reduce soft cost bloat (duplicative consultants, premium permit expediter you don’t need).
• Split non-essential items to post-close cash if your liquidity allows.

• Improve LTV by improving value:
• Align floor plan and bed/bath mix to market comps (adding a half-bath or a third garage bay can move value more than a luxury countertop).
• Enhance curb appeal inexpensively (garage doors, landscape, lighting, front entry).
• For rentals: justify higher market rents through functional upgrades (in-unit laundry, secure package room, pet amenities).
• Document energy efficiency if your market values it.

• Add more equity without writing a bigger check:
• Land equity credit: If you’ve owned the lot, confirm the lender will accept your basis (or appraised land value) as equity.
• Partner equity or preferred equity: Bring a partner to fill the gap.
• Mezzanine debt: Layer behind the senior loan, usually more expensive; watch intercreditor requirements. Often viable on larger projects.

• Change lender or program:
• If a bank is capped at 70% LTV and you’ve got a clean project, a private lender at 75% LTV may bridge the gap for a modest rate increase and faster process.
• For owner-occupied homes, explore construction-to-perm options with MI that effectively push LTV higher.

• Extend timeline thoughtfully:
• Slower draw curve can reduce the interest reserve.
• Caution: Prolonged builds increase overhead and market risk. Don’t stretch just to shave a few dollars of interest.

The hidden constraints: experience, liquidity, and guaranties

Even if your ratios pencil, lenders still review:

• Sponsor experience: Similar scale projects completed. First-timers often see reduced LTC or added oversight.
• Liquidity and net worth: Post-close liquidity equal to 6–12 months of debt service is common. Net worth at least equal to the loan amount is a typical bank ask for recourse loans.
• Recourse: Banks often require personal guaranties. Some private lenders offer non-recourse at lower leverage and higher pricing.
• Builder capacity: GC’s current workload, bonding, and financial stability.

If you’re light on experience, partner with someone who has it. It helps more than any memo you’ll write.

Documentation that makes underwriters relax

A tidy file speeds approval and improves confidence in your ratios:

• Corporate docs and organizational chart
• Tax returns, financial statements, liquidity statements for guarantors
• Project budget (detailed), sources and uses, draw schedule
• GC contract (AIA form if possible), schedule of values, insurance endorsements
• Permits status and timeline
• Full plan set and specs
• Appraisal package prep (see earlier list)
• Exit strategy: sale comps or takeout commitment for perm loan (term sheet or LOI helps)

I’ve watched approvals move from “needs committee” to “clear to proceed” in a week just because the sponsor had a crisp package that answered all obvious questions.

Step-by-step: navigate approval with LTC and LTV in your favor

1. Clarify your target ratios before bidding – Call two lenders and ask for their max LTC and LTV and any DSCR or net worth rules. Build your budget with those caps in mind.

1. Build a realistic cost stack – Get at least two bids on major trades. – Include 8–10% contingency for ground-up; 10–15% for reno. – Model the interest reserve based on a monthly draw curve, not a flat estimate.

1. Pre-underwrite your value – Pull 5–8 comps and adjust them honestly. – For rental projects, underwrite conservative rents and a 5–7% vacancy, with taxes/insurance reflecting post-completion figures (use assessor’s method/resale comps). – If you can, pay for a pre-appraisal consult with a local MAI appraiser to sanity check ARV.

1. Calculate both caps and assume the lower one – Max Loan = min(LTC cap, LTV cap). That number should fit your cash and schedule.

1. Stress-test your assumptions – Run your budget with +10% hard cost and −5% ARV. – If the deal dies under modest stress, revise now.

1. Package for the lender like a pro – Include your comps, draw schedule, and risk mitigations. – Disclose known issues (soil, easements, off-site improvements). Surprises kill confidence.

1. Choose the right lender for the right project – Banks: cheaper capital, more paperwork, slower draws, stricter ratios. – Private: faster, more flexible, pricier. Great for timing pressure or unique projects.

1. Negotiate the structure, not just the rate – Ask about equity-first vs pro-rata draws. – Discuss contingency release conditions, retainage, and inspection turnaround times. – Clarify what costs are eligible for advance.

1. Manage the build to protect ratios – Track budget vs. actual weekly. – Approve change orders only with funding sources identified. – Protect contingency. Save upgrades for the end if value supports them.

1. Keep your exit lined up – For rentals, get a soft takeout quote early and refresh it mid-build. – For sales, track pending comps every month and watch list-to-sale price ratios and DOM.

Common mistakes I see (and how to avoid them)

• Treating LTC as “coverage for everything”
• Mistake: Assuming the lender will fund every cost.
• Fix: Ask for a list of eligible vs. ineligible costs and align your cash plan.

• Ignoring LTV until the appraisal arrives
• Mistake: Designing a Cadillac in a Chevy neighborhood.
• Fix: Align your plan and finishes with comp-supported value. Build an optional scope that can be cut.

• Underbuilding the interest reserve
• Mistake: Flat estimate instead of a draw-based model.
• Fix: Forecast monthly draws; calculate monthly interest on the outstanding balance.

• Unrealistic timeline
• Mistake: 6-month build that takes 10 months. Interest reserve gets eaten; overhead rises.
• Fix: Add weather days and inspection lag; confirm permitting duration.

• Weak documentation for land equity
• Mistake: Assuming land value equals today’s market price.
• Fix: Lenders prefer your documented basis or appraised land value. Provide purchase docs, prior appraisals, and entitlement records.

• Overreliance on private lender leverage
• Mistake: Taking high leverage at a high rate with thin margins.
• Fix: Run downside scenarios. If a 5% ARV haircut wipes profit, cut leverage or redesign.

• DSCR blindness on rentals
• Mistake: Construction loan sized to LTC/LTV, but takeout fails DSCR at completion.
• Fix: Size the construction loan to what the perm can support at conservative rates.

Owner-occupied vs. spec: the subtle leverage differences

• Owner-occupied one-time close:
• Higher possible LTV/LTC with mortgage insurance or specific programs.
• Income, credit, and DTI matter. Appraisal is still king.
• You’ll lock your perm loan terms upfront (sometimes float down options exist).

• Spec build:
• Lower LTV/LTC due to market risk and no guaranteed takeout.
• Lender may require pre-sales in subdivisions or stronger liquidity for standalone specs.
• Exit timing matters; watch seasonality and DOM trends.

Renovations vs. ground-up: where lenders get wary

• Renovations:
• LTC includes more contingency; the unknowns behind walls scare lenders.
• Appraisers scrutinize ARV quality: not all rehabs command “new construction” comps.

• Ground-up:
• Site risk (Soil Conditions, utilities, easements) and permitting drive timing.
• Construction delays can balloon interest reserve needs; plan your inspections tightly.

Insurance, bonds, and other lender comfort levers

• Builder’s risk insurance: Required. Make sure limits and endorsements meet lender requirements.
• Liability and workers’ comp: Certificates from GC and major subs.
• Payment and performance bonds: Not always required, but they can help with leverage or comfort on larger jobs.
• Funds control: Third-party funds control can speed draws and give lenders comfort in disbursing to subs.

What happens if ratios change mid-build

• Appraised value changes rarely cause in-flight loan resizing unless you request a modification.
• Cost increases, however, are your problem unless you have contingency or a committed overrun facility.
• If you blow contingency:
• Lender may freeze non-critical draws until you inject cash.
• Change orders must be funded from new equity or a reallocation that doesn’t jeopardize completion.

Best move: Communicate early. Lenders are more flexible when they hear about issues before they become crises.

Quick-reference examples you can adapt

• Fast LTC/LTV sizing method:
• Step 1: Sum land + hard + soft + contingency + interest reserve + fees = Total Cost
• Step 2: Multiply by lender’s max LTC → LTC cap
• Step 3: Multiply as-completed value by lender’s max LTV → LTV cap
• Step 4: Loan = the lower of the two (subject to DSCR for income property)

• Stress-testing template:
• Costs +10%
• Value −5%
• Interest rate +100 bps (for rentals, apply to takeout)
• If equity need increases beyond your buffer, revise the plan.

Frequently asked questions I get from clients

• Does contingency count in Total Cost for LTC?
• Usually yes, and lenders like seeing it. They’ll only fund it as needed via draw.

• Will the lender finance my GC deposit or materials ordered upfront?
• Often yes, with proof of order and Lien Waivers. Some require materials to be on site or in bonded storage.

• Can I use sweat equity as equity?
• Rarely. Lenders want cash equity or documented land equity.

• Can I change lenders mid-project if I find a better deal?
• You can, but it’s expensive and risky. Stick with your lender unless terms become unworkable.

• What if I already own the land at a low basis—can I refinance out equity at close?
• Some lenders allow a limited cash-out if LTV supports it, but many don’t on construction deals. Expect resistance.

• If the appraisal comes in low, can I challenge it?
• Yes, with factual corrections and better comps. Don’t expect miracles—bring solid evidence.

A straightforward checklist to run before you apply

• Budget: Two bids on major trades; contingency at 8–10% (ground-up) or 10–15% (reno)
• Value: Clean comp set; income underwriting clearly supported if rental
• Ratios: Calculate both LTC and LTV caps, then size the loan to the lower cap
• DSCR: For rentals, check a conservative takeout scenario
• Equity: Confirm land equity treatment and your cash available for gap funding
• Docs: GC contract, plans/specs, permits path, lender-eligible cost list, insurance quotes
• Draws: Understand equity-first vs pro-rata and inspection timing
• Timeline: Build schedule with real lead times and permit durations
• Cushion: Keep an extra 5–10% equity buffer beyond contingency

A few professional observations after many cycles

• Projects die more often from soft underestimation than hard costs. Design, permits, and utility fees creep. Pin them down early.
• Borrowers fixate on rate while ignoring leverage. The wrong leverage kills more deals than a 50-basis-point rate difference.
• Appraisers are not your enemy. Give them a professional package and they’ll usually meet you halfway on reasoned assumptions.
• The best builders assemble a “Plan B scope”—items to cut if the appraisal comes in light or if contingency gets tight. That preplanned flexibility prevents frantic, value-destroying decisions later.
• Communication wins. Underwriters trust sponsors who bring bad news early, offer solutions, and document changes.

Bottom line you can act on

LTC and LTV aren’t abstract metrics; they’re the guardrails that decide your loan size and, ultimately, whether your project gets off the ground. If you build your budget and your design around what these ratios will actually allow—and you stress-test for bumps—you’ll avoid 90% of the last-minute drama I see in construction lending. Get your costs tight, your value supported, and your exit credible. Do that, and the approval isn’t luck; it’s the logical outcome of a well-structured deal.