A construction loan is a type of bridge loan or hard money loan. The loan is secured by the value of the property to be built. The loan covers a portion of the cost to purchase the land, if needed, as well as the supplies, labor, etc. to build the property. The leverage is based off of the value of the finished property.
ACTION FUNDING INC offers construction loans based on up to 65% of future fixed up completed value. This is by far the most aggressive highly leveraged loan that can be done. Why? Because loan to cost is capped at 75%-80%. If you have a good deal our loan will often times cover the entire cost of construction and prepaid payments. ACTION FUNDING INC constructions loans will give you 20-50% more leverage than competitors using loan to cost. Also we can use even higher leverage if you own other real estate and can cross collateralize.
The LTC ratio is used to calculate the percentage of a loan or the amount that a lender is willing to provide to finance a project based on the hard cost of the construction budget. After the construction has been completed, the entire project will have a new value. For this reason, the LTC ratio and the LTV ratios are used side by side in commercial real estate construction.
The LTC ratio helps to delineate the risk or risk level of providing financing for a construction project. Ultimately, a higher LTC ratio means that it is a riskier venture for lenders. Most lenders provide loans that finance only a certain percentage of a project. In general, most lenders finance up to 80% of a project.