Are you asking why they wont use its current value as part of the downpayment? Not sure what your question is.

What matters is the overall appraisal of the lot + house. That's what the loan officer is saying. Usually the lender will appraise the house plans on the given lot to get the expected value of the lot together with the improvements.

Your numbers don't make full sense to me: 225,000 is 20% of 1,125,000, so the amount financed is 80% of that, which is 900k, not 837.

I'm currently also in the process of a construction loan, and here is another way to do the calculation. Suppose the appraisal comes in exactly at $1,140,000 (that's your cost of lot plus construction), then 80% loan to value (LTV) will be $912,000. That's your loan. You also need to pay off 182k in you lot loan and have 250+630=880k available for construction, that's the 1062k figure. So what you need to bring to the table as down payment is 1062-912=150k (plus closing costs and less any earnest money deposits).

Now suppose instead, your appraisal is 100k higher: $1,240,000. Then 80% LTV is 992k. Then, your cash to close would be 1062-992=70k (plus closing costs and less earnest money). Note however, that in this case, your loan would be bigger and you'd have higher monthly payments, but the cash down payment would be smaller.

Thank you spec! You answered my question 🙂