Construction Loan Calculator
Estimate your payments during and after building your home.
Project & Loan Details
Your Estimated Payments
Avg. Interest-Only Payment
(During Construction)
$0.00
Permanent P&I Payment
(After Construction)
$0.00
Total Interest Paid
$0.00
| # | Payment | Principal | Interest | Balance |
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A Complete Guide to Construction Loans
What is a Construction Loan?
A construction loan is a short-term, higher-interest loan used to finance the building of a new home. Unlike a traditional mortgage where you receive a lump sum at closing, a construction loan is paid out in stages, or “draws,” to your builder as work is completed. During the construction phase, you typically only pay interest on the money that has been drawn so far. Once the home is built, the construction loan is usually converted into a standard, permanent mortgage. Our Construction Loan Calculator is designed to model this entire two-phase process, giving you a clear picture of your potential costs.
How This Construction Loan Calculator Works
Understanding the costs of building a home can be complex. This calculator simplifies the process by breaking it down into two main parts:
- The Construction Phase: You’ll enter your total loan amount and the interest rate for the construction period (typically 12-18 months). The calculator estimates your average monthly interest-only payment during this phase. This payment is an estimate because it depends on your builder’s draw schedule; we use an industry-standard model that assumes an average drawn balance over the period.
- The Permanent Mortgage: Once construction is complete, your loan converts into a regular mortgage. The calculator shows you what your fully amortized principal and interest (P&I) payment will be for the long-term based on the permanent loan term you select. This is the payment you will make for the remainder of the loan.
Key Differences from a Regular Mortgage
- Short-Term vs. Long-Term: Construction loans are short-term (usually a year), while mortgages are long-term (15-30 years).
- Higher Interest Rates: Because they are considered higher risk, construction loans typically have higher interest rates than permanent mortgages.
- The Draw System: Funds are disbursed in stages as construction milestones are met and verified by an inspector, rather than all at once.
- Qualification Requirements: Lenders often have stricter requirements for construction loans, including a detailed construction plan, a contract with a reputable builder, and a larger down payment (typically 20-25% of the total project cost).
Frequently Asked Questions
What does a construction loan cover?
A construction loan can cover a wide range of costs, including the price of the land, labor, materials, permits, and even architectural fees. When you use this Construction Loan Calculator, ensure your “Cost to Build” and “Land Value” accurately reflect your total project budget.
What is a one-time close vs. two-time close construction loan?
A “one-time close” or “construction-to-permanent” loan is the most common type. It combines the construction loan and the permanent mortgage into a single transaction with one closing. This saves you money on closing costs. A “two-time close” loan involves two separate transactions: one for the construction loan and another for the permanent mortgage after the home is built. This can offer more flexibility but is generally more expensive.
Can I use the value of my land as a down payment?
Yes, in most cases. If you already own the land, you can often use the equity in the land towards the down payment requirement for the construction loan. Be sure to enter the land’s value in the calculator to see how it affects your total project cost.