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Commercial Construction Loan Down Payment in Chicago, Illinois

The down payment required for a commercial construction loan ranges from 10% for SBA, 15% for HUD Loans and  up to 30% for commercial banks, life companies, and private lenders. Your equity in the land if you have owned it for more than 2 years may be applied at fair market value towards the down payment.

Five Key Factors for a Commercial Construction Loan Down Payment

1. Determine the Loan constraints – Is the loan constrained by NOI or Cost?
2. Determine the value  the lender will give you for the land
3. Can you apply your developer fee towards the down payment?
4. Will the lender really give you the maximum size loan?
5. Choose the loan program that gives you best down payment


5  Key Factors for a Commercial Construction Loan Down Payment

Determine the Loan Constraints -  Ideally you want the loan amount to be constrained by construction cost, not the projected net operating income of the property.  This will insure that if interest rates go up prior to loan approval your down payment requirement will not increase. All commercial construction loans start with an estimated annual mortgage payment and calculate an estimated debt service coverage ratio (DSCR) for the perm loan and work backwards to the construction loan. You will need to do a pro forma or projected income and expense estimate and net operating income for the completed stabilized property. The problem with loans constrained by net operating income is that if rates go up your debt service coverage will go down and this can result in a larger down payment. Commercial construction loans constrained by the construction cost(for example: 75% of cost) are more likely to not need an additional cash injection at the closing of the construction loan.

Determine the Value the Lender will Give You for the Land – If you already own the land that needs the commercial construction loan, call your lender and ask how much value they will give you for it towards the down payment. If you have owned it for more than 4 years, almost all lenders will give you the current appraised value for the land. However, if you have let’s say purchased it in the past 2 years or less, most lenders will only give you the value based on what you paid for it – even if you got it at a great bargain. Often developers assume that if they purchased the land below fair market value, and then did zoning and entitlement work on it that the lender will automatically give them much more value than they paid for it. But more often than not for land that was purchased recently, this is not the case.

Can you apply your developer fee towards the down payment – Most commercial construction lenders will allow you to charge a developer fee some where between 4.00% and 6.00% of the construction costs. Ask your lender if you can apply this amount towards the down payment requirement. If allowed, you lender will finance the fee as one of the project costs and you will have to come up with a bit less down.

Will the lender really give you the maximum size loan? More often than it should be, especially at commercial banks, you will be given a letter of interest showing that your commercial construction loan is based on a percentage of cost that you desire. But once the loan goes through underwriting and loan approval, the lender approves a lower amount. This can be a complete disaster for your project if you do not have or do not desire to put in additional cash. This usually occurs because the lender did not do enough due diligence prior to starting the loan or have the credit manager review the file. Commercial construction loans require strong experienced sponsors (borrowers) and development team – developer, general contractor, architect and property management company. Often the lender issues the letter of interest to tie the deal down, but does not pre-qualify the deal thoroughly enough. The best way to make sure this is not likely to happen is to have an experienced commercial mortgage broker submit you loan. Or if you have the experience make sure that you have sent the lender everything they will need upfront and that whomever is going to approve the loan has reviewed the package and pre-approved it.

Choose the loan program that gives you best down payment – And I should add – that you qualify for. Here is the bottom line. You can really spend a lot of time trying to find the construction loan with the lowest down payment. But do you qualify for this loan? And do you know all the terms? Are you confident the lender will come through with the size of loan you desire? When you first talk to a lender about a commercial construction loan they will almost always tell you that the loan is based on a percentage of cost – let’s say 75%. That might be their maximum loan to cost and this percentage will likely stick in your mind.  However, there are a many variables that ultimately will determine the maximum loan and your down payment requirement. These are: the projected net operating income of the completed leased property, the borrowers experience, financial strength and credit. Plus, as mentioned in number 4, the experience of your development team. If any of these criteria end up not being what the lender originally thought, your construction loan may be reduced to 65% or 70%. Call one of our friendly loan specialists at Apartment Loan Store. We have been lending on commercial construction for over 20 years and have 8 programs and over 50 lenders to choose from. We can save you time and money by prequalifying you accurately for the loan programs you qualify for. We will also go over the terms and underwriting criteria for all the commercial construction loan programs you are interested in.


Here Are our  8 Construction Loan Programs and their Down Payment Requirements:

1. FHA (Also known as HUD) New Construction Loan or Major Rehabilitation Loan

For Multifamily only. This loan program has the lowest down payment available for commercial construction based solely on cost with no percentage of appraised stabilized value – 15% down, however, there is an exception – 13% down if the new construction project is affordable housing.


2. Private Institution New Construction Loan
As little as 20% down on new construction financing


3. National Bank Program
Maximum new construction loan down payment of 30%


4. Regional Bank Program Loan
Maximum new construction loan down payment of 25%


5. Community Bank Program Loan
Up to 25% down on new construction financing


6. Life Insurance Company Program Loan

Up to 30% down on a new construction loan


7. Hard Money Multifamily New Construction Loan
AS little as 20% down.


8.  SBA (Small Business Administration)

As little as 10% down on the SBA 7A Program and 15% down for the SBA 504 Program


By:  Terry Painter/President   Apartment Loan Store and Business Loan Store

About the Chicago, Illinois Real-Estate Market

The annual household income in the Metro Area of Chicago-Naperville-Joliet Illinois is $66,020.

For the city of Chicago, $225,600 is the house worth median. 2.1 percent is the amount the value of houses has increased in the last year. There is a prediction that in the following year, the value of homes will increase by 6.1 percent.

$248 is the per square foot list cost median in the city of Chicago. The Metro Area of Chicago-Naperville-Elgin has a per square foot list cost average which is quite a bit lower. It is $166.

For houses listed presently in Chicago, the median cost is $324,900. Regarding homes that have been sold, $279,300 is the median cost.

$1,840 is the rent cost median. The Metro Area of Chicago-Naperville-Elgin is lower. It’s $1,750.

The foreclosure rate is an important factor when it comes to the real estate economy as well as the economy of the United States. The lower the foreclosure rate, the higher the value of homes.

Regarding the process of foreclosure, mortgage delinquency is the first thing that occurs. Mortgage delinquency is the condition of a homeowner skipping a payment on their house mortgage.

2.0 percent of homes in the city of Chicago have mortgage delinquencies. The United States has a lower mortgage delinquency rate of 1.6 percent.

Mortgage delinquencies are a serious matter for banks. This is because there are a lot of home owners who are mortgage delinquent as a result of not having enough money to pay their bills. This gives bankers a big problem.

If the home owner missed the deadline provided by the bank and is 4 months behind on mortgage payments, the process of foreclosure will usually start. Foreclosures cause banks to have financial hits because banks sell the house at a loss.

This can threaten the existence of banks and the livelihood of bank staff. There are many banks that have gone out of business when there have been lots of foreclosures. From the recession of 2008, there were a great number of foreclosures, and many banks went out of business.

In the United States, the value of homes dropped more than 20% as a result of the 2008 recession. Because of that recession, there are lots of homeowners who are currently underwater concerning their mortgages. Being underwater on a mortgage means that the owner of the home has a mortgage debt that is bigger than the value of their home.

In the city of Chicago, IL, there are a large number of homeowners who are currently underwater regarding their mortgages. It’s 22.9%. The Chicago-Naperville-Elgin Metro Area has a lower underwater rate, which is 16.4%.

Moving on to Chicago commercial real estate, regarding the Willis Tower redevelopment project in the city of Chicago, there is a very big development plan called the Catalog. It includes a retail and entertainment hub, as well as a 300 square foot restaurant.

Located at the bottom of Willis Tower, Catalog will occupy 5 stories. Known as the pioneer regarding the shopping catalog, the Sears Roebuck Company’s Catalog is the namesake for the Willis Tower.

Catalog will have the latest in retail. This includes things customers can experience including entertainment and fitness boutiques. Also, there will be food venders as well as soft goods. There is a change happening in our lives in which we have a need for experience and lifestyle being an important part of our workday.

Located in the heart of downtown Chicago, there is the forwarding of the mission to bring about a new Willis Tower through the addition of Catalog. It is an urban location that gives great experiences of work and life as well as capturing the city’s vibrancy for the residents as well as visitors to the Windy City.

Catalog will have a food hall of 14,000 square feet. The food hall will open in the middle of the year 2020.

Taylor Gourmet, Luke’s Lobster, Shake Shack and Sweetgreen will be some other tenants occupying Catalog.

The icing for the Catalog will be a roof deck and garden of 30,000 square feet.

The annual household income in the Metro Area of Chicago-Naperville-Joliet Illinois is $66,020.

For another great source to find out more about apartment real-estate in Chicago, go to

Apartment Loan Store is proud to serve the entire Greater Chicago area:

  • Arlington Heights
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