How much down payment do I need for a construction loan?
A construction loan typically requires equity of 20 to 35 percent of total project cost, meaning land plus hard and soft costs, with experienced borrowers at the low end and first projects at the high end. Land you already own counts toward that equity at purchase price or appraised value, which can reduce the cash required to little or nothing.
How the number is calculated
Lenders size the loan as a percentage of total cost, capped by a percentage of completed value. Your equity is the difference between total cost and the loan.
| Borrower profile | Typical loan-to-cost | Equity required |
|---|---|---|
| Experienced, bank lender | 75 to 85 percent | 15 to 25 percent |
| Experienced, private lender | 80 to 85 percent | 15 to 20 percent |
| First project, private lender | 65 to 75 percent | 25 to 35 percent |
| Speculative or unusual asset | 60 to 70 percent | 30 to 40 percent |
Ranges vary by lender.
A worked example
Total cost $1.5 million (land $300,000, hard costs $1,050,000, soft costs and interest reserve $150,000). At 75 percent loan-to-cost the loan is $1,125,000 and your equity is $375,000. If you own the land free and clear and it appraises at $300,000, that equity covers $300,000, and you bring $75,000 in cash plus closing costs. If you are buying the land as part of the project, you bring the full $375,000.
What counts as equity
- Cash at closing.
- Land you own, at purchase price if bought within about a year, or appraised value if held longer or entitled since.
- Prepaid soft costs, such as plans, permits, and engineering already paid, when documented.
- Sweat equity: generally not counted.
- Seller financing on the land: rarely allowed to sit behind a construction loan; ask first.
Reserves on top of equity
Separate from the equity, lenders want reserves after closing, typically 10 to 15 percent of the loan amount. On a $1,125,000 loan that is $112,000 to $170,000 in verified funds. This is the number that surprises first-time developers.
The completed-value cap
Even with enough equity, the loan cannot exceed 60 to 75 percent of the as-completed appraised value. If the project cost is high relative to the finished value, the lender reduces the loan and the equity requirement rises. A project that costs $1.5 million and appraises at $1.7 million finished is at the edge for many lenders.
Lowering the cash requirement
- Use land you already own.
- Bring an experienced partner or contractor to move to a lower equity tier.
- Reduce scope to what the appraisal supports.
- Document prepaid soft costs.
- Choose a lender whose grid fits your profile rather than the first bank to say 35 percent.
How CommFi handles it
Our lending desk sizes the loan against cost and value and shows you the cash and reserves required before you commit. It funds direct when it fits, and when a lender with a better grid for your profile exists, the desk searches a database of 7,000+ lenders and the ones that fit compete for the file. Zero upfront fees.
Related reading
Related questions
- How much down payment does a construction loan need?
- Typically 20 to 35 percent of total project cost, including land, with first projects at the high end.
- Does the land I own count as my down payment?
- Yes, at purchase price if bought recently or appraised value if held about a year or more.
- Can I get a construction loan with 10 percent down?
- Rarely from a private or bank construction lender. SBA 504 construction loans for owner-users can reach 10 to 15 percent.
- Do I need reserves in addition to the down payment?
- Yes, typically 10 to 15 percent of the loan amount in verified funds after closing.
- Can a partner's cash count as my equity?
- Yes, if the partner is in the ownership entity and signs as a guarantor where required.
Property developer and licensed appraiser. 22+ years in real estate: TIC conversions, multi-unit redevelopments, mixed-use, fix and flips, commercial DSCR.