What is loan to value (LTV) and loan to cost (LTC)?
Why it’s probably the most important factor in getting approved for a construction loan besides your income and credit. Banks are concerned with two important variables, loan to appraised value (LTV) and loan to cost (LTC). If you were buying a home instead of building you would normally have to put up to 20% of the purchase price as a down payment. Since you’re building a home your cash equity usually comes in the form of how much cash you’ve put down on your land or any pre-pays such as architect costs. Cash equity is king when applying for a construction loan. For example, if you bought a $200,000 piece of land and you paid for the land free and clear you have a lot of cash equity. With this much cash equity you will most likely not have to bring in any additional cash. Or if you purchased a piece of land over 12 months ago for $100,000 and its now worth $200,000, the bank will use the current seasoned value (12 months). In both cases you have brought $200,000 cash equity to the tab
