Loan-to-value ceilings in the federal real estate lending guidelines, from 65 percent for raw land to 85 percent for improved property, that a bank's own limits should not exceed.
Federal guidelines tell each bank to set its own loan-to-value limits for real estate loans and say those limits should not exceed a supervisory table. The ceilings are 65 percent for raw land, 75 percent for land development, 80 percent for construction of commercial, multifamily and other nonresidential property, 85 percent for construction of 1-4 family homes, and 85 percent for improved property.
Example: on a commercial building that will be worth $5,000,000 when finished, the 80 percent ceiling is a $4,000,000 construction loan.
A bank may go over a ceiling when the loan file supports it, but the total of all such loans should not exceed 100 percent of the bank’s total capital, and the part that is not 1-4 family residential should not exceed 30 percent. So an over-the-line loan uses a scarce basket and is reported to the bank’s board.
Most banks set policy limits under the table, so a quote of 70 or 75 percent on an improved property reflects the bank’s choice, not the federal ceiling. A request above the table is possible but rare.
How it shows up in the data here
Call Reports do not carry the loan-to-value of individual loans, and banks do not report how much of the exception basket they have used, so no bank page shows either. Use the LTV and LTC calculator to see where a request sits against these ceilings, and the construction lender list to find banks that hold loans at the land and construction stages.
Go further
- LTV and LTC calculator: Loan to value and loan to cost for the numbers you enter.
- Construction lenders: Lenders that hold construction and land loans.
- LTV and LTC calculator: Loan to value and loan to cost, the equity a lender will ask for, and the federal supervisory limit for the property type.
- Maximum loan calculator: The loan each test allows: DSCR, LTV and debt yield side by side, and which one binds.
- Supervisory loan to value limits and HVCRE, explained: Two federal rules shape how much a bank will lend against real estate: a table of loan to value ceilings, and a capital rule that makes some construction loans cost the bank more to hold.
- Construction loan package checklist: A construction lender is lending against a building that does not exist yet. The package has to show what it will cost, who will build it, where every dollar comes from, and how the loan gets repaid when it is done.
- How bankers evaluate a commercial loan deal: A credit officer asks one question five ways: how will this loan be repaid, and what happens if it is not? Knowing the five tests lets you size a request before you send it.
Related terms
- Loan-to-value ratio (LTV): The loan amount divided by the value of the property securing it. A $700,000 loan on a property valued at $1,000,000 is 70 percent loan to value.
- HVCRE exposure: A land, development or construction loan that a bank must carry at a 150 percent risk weight under the capital rule unless the project meets an exemption, such as 15 percent borrower capital.
- ADC loan: A loan to acquire land, develop it or build on it, repaid from the sale, lease-up or refinance of the finished project. Banks report these as construction, land development and other land loans.
- Land loan: A loan to buy land that has not been developed, repaid from other income or from a later sale or development loan.
- Construction loan: A short-term loan that pays for building or renovating a property, advanced in stages as work is finished and repaid from a sale or a permanent loan.
- As-complete value: An appraiser's estimate of what a property will be worth on the date construction is expected to be finished.
- Total risk-based capital: The sum of a bank's tier 1 and tier 2 capital. The capital rule requires it to be at least 8 percent of the bank's risk-weighted assets.
Sources
Plain definitions for orientation, not legal, tax or credit advice. A lender's own policy decides what it will do.