Construction loans are sized on total project cost. With Passy Capital the maximum is 85% loan to cost (LTC), which means your equity is at least 15% of the cost. Working backwards from the loan you want gives the project it can fund and the equity it needs.
The arithmetic at 85% LTC
Total cost is the land, the hard costs, the soft costs (architecture, engineering, permits, insurance, interest) and a contingency line. Leaving soft costs or contingency out does not reduce your equity; it just means the budget is short. The construction loan calculator runs other numbers.
| Loan | Total project cost it can fund | Minimum equity (15% of cost) |
|---|---|---|
| $1,000,000 | $1,176,471 | $176,471 |
| $1,500,000 | $1,764,706 | $264,706 |
| $2,000,000 | $2,352,941 | $352,941 |
| $3,000,000 | $3,529,412 | $529,412 |
The land usually is the equity
If you already own the lot, its value or cost usually counts toward your equity. On a $1.76M project where the lot represents $300,000, the land alone covers the 15%. If you buy the lot with the loan, the land portion funds at closing and your equity goes in first, before the first draw.
In what order the money goes in
Because your equity is spent before the first draw, it cannot also serve as your reserve. That is why lenders look at equity and liquidity separately.
- Your equity goes in first: the lot you own, or cash toward the land and early costs
- At closing, the land portion of the loan funds if the lot is bought with it
- The rest of the loan is held back and released in draws as each stage is completed and inspected
- Interest is charged only on what has been drawn, so the balance and the interest grow with the build
- The loan is repaid from the sale, or refinanced into a DSCR loan up to 80% LTV if you keep the home
Equity is not the same as liquidity
Beyond the equity in the deal, the lender wants to see cash you can reach during the build. Interest runs on the drawn balance, typically at 9% to 12% a year (as of October 2026; rates move with the market), so carry grows as the build progresses. Overruns beyond the contingency are yours to fund, and if the sale takes longer than planned you carry the loan for those extra months.
- Interest on the drawn balance, if it is not reserved in the loan
- Overruns beyond the contingency
- A few months of holding costs after completion
- The 1% to 2% fee and closing costs, paid at closing
When 85% is not the binding number
Every construction loan is also checked against the as-completed value. Where the finished home will appraise well above cost, the 85% cost test sets the loan. Where value is close to cost, the value check sets it, and you bring more equity. That is common in expensive markets: see 85% loan to cost on a Los Angeles spec build.
Experience moves leverage too. A first spec home is fundable, with an experienced licensed general contractor, but completed builds earn more leverage. What else a lender needs is in spec home construction loan requirements.
The short version
For a $1.5M ground-up construction loan: about $265,000 of equity at the maximum, more if the value check or your experience reduces leverage, plus enough liquidity to carry the project to a sale or a DSCR refinance. Loans run from $1M to $5M for US and foreign investors on the same terms, and a term sheet comes back in 24 to 48 hours. See construction loans.