| Example | Hypothetical $10M eligible project |
| Cost ceiling | 87% = $8.7M before other tests |
| Important distinction | Maximum loan versus available cash |
“Up to 87% LTC” describes one loan-sizing limit. It does not mean every developer needs only 13% of the budget in cash. Eligible costs, debt service coverage, statutory limits, required reserves and the timing of payments all affect the real capital requirement.
For HUD construction, use two calculations: the maximum loan that survives every applicable test, and the cash that must be available before and during the project. The difference matters even when the loan covers a large share of eligible cost.
A worked example: the income test controls
Consider a hypothetical market-rate rental development with $10 million of HUD-eligible cost. At 87% LTC, the cost-based ceiling is $8.7 million. Now assume underwritten annual NOI of $600,000 and required DSCR of 1.15.
Maximum annual debt service: $600,000 ÷ 1.15 = about $521,739.
Assume, solely for this example, an all-in annual debt-service factor of 6.50% of the initial loan, including the relevant payment and insurance allowance. This factor is a modeling assumption, not an interest-rate quote or official HUD constant.
Income-based loan: $521,739 ÷ 0.065 = about $8.027 million.
The income test produces a lower amount than the $8.7 million cost ceiling. Before any other limiting test, the gap against eligible cost is about $1.973 million, not $1.3 million. The actual calculation must use the approved amortization, rate, insurance treatment and underwriting inputs.
Now build the separate cash schedule
For illustration, assume another $300,000 of required costs and deposits is outside the $10 million figure and is not funded by the loan. Total capital required becomes about $2.273 million before considering acceptable land-equity credit, prior contributions or other approved sources.
This example deliberately keeps the extra $300,000 outside the original budget. In a real sources-and-uses schedule, identify each cost once. Counting a reserve inside the development budget and again as an extra deposit overstates the need; omitting it understates the need.
- Cash spent on reports and design before financing is available.
- Equity and deposits due at closing.
- Working cash between contractor payments and loan draws.
- Operating losses during lease-up and required reserves.
- Contingency if costs rise or income stabilizes later than planned.
Does 90% LTC remove this problem?
No. A qualifying affordable or middle-income structure may allow different cost and coverage limits, but eligibility must first be established. Other constraints still apply. A 90% maximum is not a commitment to finance every cost, and it does not eliminate reserves or the need to evidence equity.
The middle-income route has a specific recorded restriction and program framework. Read the 2026 middle-income guide before using that category.
Compare proposals on the same basis
Ask for gross loan proceeds, funded costs, nonfunded costs, initial deposits, cash to close, expected draw timing and reserve-release conditions. Keep those figures separate from headline leverage.
Stonehaven can help organize the project’s sources and uses before a financing review. Start with HUD construction financing and provide the total budget, land status, projected NOI and requested amount.
Sources and review date
Checked October 20, 2026. These are program explanations and illustrative planning examples, not a commitment or current rate quote. Issued HUD updates control over older summaries.