The construction loan amount a lender offers is not based on a single number. Instead, lenders evaluate several factors together and use the most conservative result to set the final loan size. Understanding how lenders approach this calculation helps investors structure realistic budgets and avoid surprises during underwriting.
Total Project Cost #
Lenders start by reviewing the total cost of the project. This typically includes the land acquisition price, hard construction costs, soft costs such as permits and architectural fees, and contingency reserves. The more complete and detailed the budget, the more confidently a lender can underwrite the loan.
Loan-to-Cost (LTC) #
Loan-to-cost, or LTC, measures the loan amount as a percentage of the total project cost. Most construction lenders limit leverage to a specific LTC threshold, which means the borrower must contribute the remainder as equity. For example, if a lender offers 80% LTC on a $600,000 project, the maximum loan would be $480,000, and the investor would need to cover the remaining $120,000.
After-Construction Value and LTARV #
Lenders also evaluate the loan amount against the projected value of the finished property. Lenders call this ratio loan-to-after-repair value, or LTARV, and use it to confirm the completed project supports the requested loan. If the projected value does not justify the loan size, the lender will reduce the loan amount accordingly. As a result, an accurate and supportable valuation is critical to maximizing leverage.
Construction Financing Percentage #
Some lenders cap how much of the hard construction costs they will finance. AHL offers construction financing of up to 100%, meaning the loan can cover the full construction cost in qualifying scenarios. However, the LTC and LTARV limits still apply overall.
Maximum Loan Cap #
In addition to leverage ratios, lenders set a hard cap on total loan size regardless of project value. AHL finances new construction loans up to $3-4 million. Projects that exceed this threshold would need alternative financing or a different lender.
How Lenders Use All Factors Together #
Lenders calculate the maximum loan under each metric separately, then use the lowest result. For instance, if the LTC calculation supports a $700,000 loan but the LTARV supports only $650,000, the lender will offer $650,000. Consequently, investors benefit from understanding all three constraints before finalizing their budget and loan request.
Summary #
Total project cost, LTC limits, after-construction value, and hard loan caps all shape the final construction loan amount. AHL offers up to 100% construction financing with a maximum loan of $3-4 million, but the final loan size always reflects the most conservative limit across all metrics. Building a detailed, accurate budget and a well-supported valuation gives investors the best chance at maximizing the loan amount they qualify for.