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Construction Loan Calculator
Calculate interest-only payments during construction, see your draw schedule, and estimate your permanent mortgage after completion
Quick Overview
Who Should Use This
Buyers building a custom home, borrowers with a construction-to-permanent loan, and anyone financing a new build who needs to understand two-phase loan costs.
Purpose
Calculate interest-only payments during the construction draw period, model the draw schedule, and estimate the permanent mortgage payment after project completion.
Example
Building a $500K home with a $400K construction loan at 7.5% — average monthly interest-only payments of $1,875 during a 12-month build, then a $2,796/month permanent mortgage.
Loan Details
Pro Tip: Construction loan interest is charged only on disbursed draw amounts — not the full loan. Actual interest paid depends on your draw schedule and timing. The calculator uses a typical 5-draw schedule for the estimate.
Construction Loan Results
Construction
12 mo
interest only
→
Conversion
Day 1
one-time close
→
Permanent
30 yr
full P&I
Permanent Monthly Payment (PITI)
$0
After construction completes — principal, interest, taxes & insurance
Total Project Cost
$0
with contingency
Construction Loan Amount
$0
land + build - down payment
Interest During Construction
$0
over build period
Avg Monthly Interest (Build)
$0
while building
Project Cost Breakdown
Land Cost$0
Construction Cost$0
Contingency (10%)$0
Total Project Cost$0
Your Down Payment$0
Construction Loan Amount$0
Est. Value at Completion$0
Est. Equity at Completion$0
Typical Draw Schedule & Interest
| Draw | Milestone | % | Amount | Cumulative | Monthly Interest |
|---|
Permanent Mortgage After Completion
Permanent Loan Amount$0
Interest Rate0.00%
Loan Term30 years
Monthly P&I$0
Monthly Property Tax$0
Monthly Insurance$0
Total Monthly (PITI)$0
Total Interest (Mortgage)$0
Total Interest (Build + Mortgage)$0
Loan-to-Value at Completion
0%
Based on estimated completion value
How to Use
How to Calculate Your Construction Loan
Understand your build costs and mortgage in 4 steps
1
Enter Project Costs
Input your land cost (or $0 if already owned), construction contract amount, and a contingency buffer. Include your estimated home value at completion for the LTV calculation.
2
Enter Loan Terms
Input your down payment, construction loan interest rate (typically 1–2% above mortgage rates), and how long construction will take.
3
Enter Permanent Terms
Enter the permanent mortgage rate and term you plan to use after construction. For a one-time-close loan, these are locked at origination.
4
Review All Costs
See your draw schedule, total interest during construction, permanent PITI payment, and total project cost — so there are no surprises on your custom build.
How Construction Loans Work
Construction loans are short-term, higher-rate loans designed to fund a home build from groundbreaking to certificate of occupancy. Unlike a mortgage, you don't receive the full amount upfront — instead, funds are disbursed in stages called "draws" as each construction milestone is completed and inspected.
During construction, you pay interest only on the funds drawn — not the full loan amount. This keeps payments manageable while building. The interest compounds as more draws are released and the outstanding balance grows.
Once construction is complete, the loan converts (or is replaced by) a permanent mortgage — either through a one-time-close construction-to-permanent loan, or a separate mortgage you obtain after completion.
One-Time-Close vs Two-Close Loans
- Construction-to-Permanent (One-Time-Close): Applies once, closes once. Automatically converts to permanent mortgage at completion. One set of closing costs. Rate is locked at the beginning — no rate risk. Most popular for primary residence builds.
- Stand-Alone Construction Loan: Separate construction loan and mortgage. Two closings, two sets of closing costs. Lets you shop for the best permanent rate after construction — useful if rates are falling or you expect to qualify better after your income grows.
- Owner-Builder Loans: Available if you're acting as your own general contractor. Harder to qualify for and requires demonstrated construction experience.
Construction Financing
Everything You Need to Know
Key concepts for building a home and financing it right
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The Draw Schedule
Funds are released in 5–6 stages tied to construction milestones: closing/land, foundation, framing, rough-in mechanicals, drywall/finishes, and final completion. Each draw is inspected before release. Interest grows with each draw.
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Interest Calculation
You pay interest only on drawn funds, not the total loan. A $300K loan partially drawn ($150K outstanding) costs half the interest of a fully drawn loan. Faster draws = higher early interest costs.
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Cost Overrun Risk
Always budget 10–15% contingency. If overruns exceed your loan, you pay out of pocket. Get a fixed-price contract from your builder and have your plans and specs finalized before locking in the loan amount.
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Qualification Requirements
Construction loans require: licensed builder/GC, approved plans and permits, 20–25% down, credit score 680+, detailed budget and timeline, and sometimes builder's financial statements. Owner-builder loans are harder to qualify for.
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Construction Timelines
Typical construction timelines: custom single-family home 10–14 months; production home 6–9 months; complex custom 18–24 months. Lenders set a maximum construction period (usually 12 months, extendable). Budget interest for the full period plus a buffer.
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Rate Lock Strategy
With one-time-close loans, you lock the permanent rate at origination — protecting against rate increases. With stand-alone construction loans, you float until completion. If rates rise significantly during the build, a stand-alone loan can cost more. Rate risk is real over 12+ month builds.
Common Questions
Construction Loan FAQ
The typical construction loan process:
- Step 1 – Apply & Qualify: Submit builder contract, plans, permits, timeline, and budget. Lender approves loan amount (land + construction cost).
- Step 2 – Close the Loan: Pay closing costs, sign documents. Construction fund held in escrow. You bring your down payment.
- Step 3 – Construction Begins: Builder requests draws at each milestone. Lender sends inspector. Funds released to builder. You pay monthly interest on drawn amount.
- Step 4 – Final Draw & CO: Last draw released after certificate of occupancy. Construction loan fully drawn.
- Step 5 – Convert to Mortgage: One-time-close: automatically converts. Stand-alone: apply for new mortgage to pay off construction loan.
Construction loan credit requirements are typically stricter than standard mortgages due to higher risk:
- Minimum: 680 credit score (most conventional construction lenders)
- Best rates: 720+ credit score
- FHA construction loans: 580+ with 3.5% down (through HUD-approved programs)
- VA construction loans: No official minimum but 620+ typically required
Beyond credit, lenders also require DTI below 43–45%, verified income and assets, and sufficient reserves (often 6 months of payments).
Yes — if you own land free and clear (or have equity in it), that equity typically counts as part or all of your down payment for a construction loan.
Example:
- Land value: $80,000 (owned free and clear)
- Construction cost: $320,000
- Total project: $400,000
- Required down (20%): $80,000
- Land counts as: $80,000 equity
- Additional cash needed: $0
If you have a mortgage on the land, only your equity portion counts. The lender will appraise the land and construction plans together to determine the finished home value and loan amount.
Construction overruns beyond your approved loan amount must come from your own funds. The lender won't automatically increase the loan.
How to protect yourself:
- Get a fixed-price contract (not cost-plus) with your builder
- Build a 10–15% contingency into your budget
- Finalize all plans and specs before locking in the loan amount — change orders are the biggest source of overruns
- Check builder references and financial stability
- Have a separate emergency fund available
If overruns are substantial and you can't cover them, you can apply for a loan modification or construction budget increase, but approval is not guaranteed.
Construction loan interest is calculated only on the disbursed balance, not the total approved loan amount:
- Formula: Monthly Interest = Outstanding Balance × (Annual Rate ÷ 12)
- If you've drawn $100,000 at 9%: $100,000 × (9% ÷ 12) = $750/month
- After next draw of $80,000 ($180K total): $180,000 × 0.75% = $1,350/month
Interest payments grow as construction progresses. Your lowest interest payments are at the beginning (small draws); highest near the end (full loan drawn). The calculator uses a typical 5-draw schedule spreading disbursements over the construction period.
A construction-to-permanent (CTP) loan, also called a "one-time close" or "single close" loan, is a single loan that starts as a construction loan and automatically converts to a permanent mortgage when the home is complete.
Advantages:
- One application and one closing — saves $3,000–$8,000 in duplicate closing costs
- Rate locked at origination — protects against rising rates during the build
- Simpler process — no need to requalify for a mortgage after construction
Disadvantages:
- Rate is locked early — if rates drop during construction, you're stuck with the higher rate
- Less flexibility to shop for the best permanent mortgage rate separately
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