Supervisory loan to value limits and HVCRE, explained

The two rules, and why a borrower meets them

A bank that says “we can go to 75 percent on this” or “we need more cash in before we fund” is often speaking from two federal texts. The first is the Interagency Guidelines for Real Estate Lending Policies, which set supervisory loan to value limits. The second is the capital rule’s definition of a high volatility commercial real estate exposure, or HVCRE.

Neither one tells a bank it must make a loan. Both set outer edges. A bank’s own policy is usually tighter, and the guidelines say outright that the limits “should not be interpreted to mean that loans at these levels will automatically be considered sound.”

The supervisory loan to value table

Each federal bank regulator publishes the same guidelines as an appendix to its real estate lending rule. The FDIC’s copy is Appendix A to 12 CFR part 365 and the OCC’s is Appendix A to subpart D of 12 CFR part 34. They tell each bank to set its own internal loan to value limits, and say those limits should not exceed the table below.

Supervisory loan to value limits for bank real estate loans (12 CFR part 365, Appendix A)

Three footnotes and sentences in the guidelines change how the table reads in practice.

• Multifamily construction includes condominiums and cooperatives. A condominium project is measured against the 80 percent row.
• Owner-occupied homes have no limit, with a condition. For a permanent mortgage or home equity loan on an owner-occupied 1-4 family home at 90 percent or more at origination, the bank “should require appropriate credit enhancement in the form of either mortgage insurance or readily marketable collateral.”
• A loan that funds more than one phase uses the last phase. For a loan that pays for both land development and construction of an office building, the limit is the one for the final phase, here 80 percent. The guidelines add that “loan disbursements should not exceed actual development or construction outlays.”

For a loan secured by two or more properties, the ceiling is the sum of each property’s value, less senior liens, multiplied by the limit for that property.

Loans above the table

The guidelines expect some loans above the limits. A bank may make one when other credit factors support it. Those loans are tracked as a group:

• each is identified in the bank’s records, and the total is reported to the board at least quarterly;
• the total of all loans above the limits “should not exceed 100 percent of total capital”;
• within that, loans on commercial, agricultural, multifamily and other properties that are not 1-4 family “should not exceed 30 percent of total capital.”

So a bank has a fixed amount of room for exceptions, and commercial property shares a 30 percent bucket. A request above the table competes for that room with every other exception the bank holds. The guidelines say a bank “will come under increased supervisory scrutiny” as the total nears those levels.

Loans the table leaves out

The guidelines list transactions where other factors outweigh the limits. Among them:

• loans with a guaranty or insurance from the U.S. government or its agencies, where the guaranty is at least equal to the part of the loan above the limit;
• loans to be sold promptly after origination, without recourse, to a financially responsible third party;
• loans renewed, refinanced or restructured without new funds, other than reasonable closing costs;
• loans where real estate is taken as added collateral “through an abundance of caution”;
• working capital loans where the lender does not rely principally on real estate as security.

The first item is why an SBA guaranteed loan can sit above the table. The last two are why a business loan with a lien on the owner’s building is not always measured as a real estate loan.

Looking for a lender now? Find lenders for this in your state or see Construction lenders state by state.

HVCRE: the 15 percent capital test

Banks hold capital against each loan in proportion to a risk weight. Under 12 CFR 324.32(j), a bank “must assign a 150 percent risk weight to an HVCRE exposure.” A loan in that class takes more of the bank’s capital than the same dollar amount outside it, so the bank has a reason to structure a construction loan to stay out.

The definition is in 12 CFR 324.2. An HVCRE exposure is a credit facility secured by land or improved real property that:

• primarily finances, has financed, or refinances the acquisition, development, or construction of real property;
• has the purpose of providing financing to acquire, develop, or improve that property into income-producing real property; and
• depends on future income or sales proceeds from, or refinancing of, the property for repayment.

That describes most commercial construction loans and many acquisition and development loans. The definition then lists what is not HVCRE.

What keeps a loan out of the HVCRE class (12 CFR 324.2)

The third row from the bottom matters for a refinance or a light renovation: a loan on a building that already carries itself is outside the class.

What counts toward the 15 percent

The borrower’s contributed capital can take four forms under the definition: cash, unencumbered readily marketable assets, development expenses paid out of pocket, and contributed real property or improvements. Contributed real property is counted at its appraised value, set under the federal appraisal standards in connection with the loan.

The measure is the as completed value, not cost. That differs from loan to cost, which is how most borrowers think about equity. A project can meet a bank’s loan to cost rule and still fall short of 15 percent of value, or the reverse.

When the label comes off

A bank may reclassify the loan as a non-HVCRE exposure once two things are true: the development or construction is substantially complete, and cash flow from the property is sufficient to support debt service and expenses under the bank’s standards for permanent loans. Until then, the contract must keep the borrower’s capital in the project. A loan made before January 1, 2015 is not an HVCRE exposure at all.

A worked example

Worked example (hypothetical). Take a small office building that will cost $10,000,000 to build, land included, and that an appraiser values at $12,000,000 as completed.

Supervisory limit. Commercial construction is the 80 percent row. 80 percent of $12,000,000 is $9,600,000. A loan above that would be an exception the bank has to track.

HVCRE test. 15 percent of the as completed value is $1,800,000. The borrower bought the land for cash and it appraises at $1,500,000. Add $300,000 of paid architect and permit costs and the contribution is $1,800,000, which meets the test if it is in before the first advance and the loan agreement keeps it in.

The loan. Cost of $10,000,000 less $1,800,000 of borrower capital leaves $8,200,000. That is 68.3 percent of value ($8,200,000 divided by $12,000,000) and 82 percent of cost ($8,200,000 divided by $10,000,000). It is inside the table and outside HVCRE.

Now say the borrower wants $9,000,000 and will put in $1,000,000. Loan to value is 75 percent, still inside the table. But $1,000,000 is 8.3 percent of the as completed value, under 15 percent, so the loan is an HVCRE exposure and carries the 150 percent risk weight until it is reclassified. The bank may still make it. It will cost the bank more capital to hold.

What this means for a request

Lead with value and cost, both. A bank reads the table against value and reads its own equity rule against cost. Give the appraised as is and as completed values if you have them, the full budget, and the cash and land already in. The loan to value and loan to cost calculator prints both ratios.

Show the contribution before the first draw. The 15 percent has to be in before the bank advances funds, other than a nominal sum to secure its lien. A plan to add equity later in the project does not meet the text.

Expect distributions to be restricted. The contract must require the minimum capital to stay in until the loan is reclassified. Ask the lender how it writes that into the loan agreement.

Ask which row the bank uses. Raw land at 65 percent and land development at 75 percent are far from improved property at 85 percent. Whether a site with entitlements and no utilities is “raw land” or “land development” is the bank’s reading of its own policy. See the residential development checklist and the construction checklist.

Ask about exception room. If the request is above the table, the honest question is whether the bank has room in its 30 percent bucket and wants to use it here.

What the public record shows, and what it does not

Bank call reports show construction and land loans held. Across the banks and credit unions in this site’s file, that book was $470B FDIC call reports and NCUA 5300, Jun 30, 2026. A lender’s page shows its own balance and what share of its capital that balance is, which is the subject of the concentration guide.

No public filing shows a bank’s internal loan to value limits, how many exceptions it holds, or which loans it treats as HVCRE. Those answers come from the lender. A bank’s size also sets a ceiling on any one loan, covered in the legal lending limit guide.

Questions to put to the bank

• What is your internal loan to value limit for this property type, and is it measured on as is or as completed value?
• What do you count toward borrower capital, and at what value do you count land I already own?
• Does the capital have to be in before closing, or before the first advance?
• If the request is above your limit, is an exception possible, and who decides it?
• When the building is finished and leased, will you convert the loan, and on what test?

General information, not legal, tax or credit advice. A lender's own policy decides what it will do; ask it for the policy in writing.

Source and date appear beside each figure. Banks report balances, not loans made. Loans made come only from HMDA and SBA files. We do not audit filings and can make errors joining them. Report a problem