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Construction Loan Down Payment Requirements
Construction loans are sized by LTC and LTV, not by a fixed down payment percentage. Here's how to think about the borrower equity required for a typical Sacramento or Northern California project.
Equity vs. Down Payment
On a construction loan, "down payment" really means borrower equity in the project. Lenders cap loan size at the lesser of LTC (cost) and LTV (completion value), and you're responsible for whatever portion of total cost the loan doesn't cover.
Common Sources of Equity
- Cash — verified in liquid accounts
- Land equity — as-is value of land already owned, supported by appraisal
- Partner or member capital — contributed through the borrowing entity
- Completed pre-construction work — reimbursed at closing if documented
Liquidity Beyond Equity
Lenders also want to see liquidity reserves after closing — typically several months of debt service plus contingency capacity. This is separate from the equity contribution and is one of the most common reasons otherwise viable Sacramento projects get re-sized.
Quick Sizing Example
Total project cost: $1,200,000
Max loan at 85% LTC: $1,020,000
Required borrower equity: $180,000 (15%)
Of which: land equity $120,000 + cash $60,000
Liquidity reserves expected after closing: $80,000+
Related: LTC vs LTV, requirements checklist, first-time developer programs.
Frequently Asked Questions
How much down payment do I need on a construction loan?+
Most Sacramento and Northern California construction loans require borrower equity of roughly 10–25% of total project cost. The exact number depends on LTC and LTV caps, your experience, and the project's risk profile.
Does my land count toward the down payment?+
Usually yes. The as-is value of land you already own is treated as equity in the deal, subject to the lender's appraisal and any seasoning requirements.
Can I use a partner's cash as my equity?+
Yes, when the partner is on the loan as a guarantor or member of the borrowing entity. We help structure deals with multiple guarantors so cash sources are properly documented.
What about interest reserves — do I need cash for those too?+
Interest reserves are typically built into the loan amount and disbursed monthly to pay interest during construction. You still need separate liquidity beyond your equity contribution for contingencies and overruns.
Run Your Numbers With Us
Send your project budget, land value, and available cash — we'll model your equity requirement and likely loan structure.
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