Real estate market

The loan-to-value ratio for single-family construction loans varies from lender to lender. Some banks normally limited the entire construction-permanent loan to 80% of the appraised value of the completed property. Many lenders today, however, treat the construction-permanent LTV similarly to purchase programs, with total LTVs reaching 90%-95%. At 80% LTV, the need for private mortgage insurance (PMI) is obviously eliminated. In such cases, the purchase of the lot is considered the loan’s down payment, as the land entails 20% of the average property’s total value. To determine the total property value, most lenders generally use the lesser value of two methods:

• Appraised (projected) value of the finished project, plus the original price of the lot.
• “Stick & Bricks” price of the construction, plus the original price of the lot.