Construction Loan Calculator

How the Conversion to a Permanent Mortgage Actually Works

The conversion isn't triggered by a date on the calendar — it's triggered by the home being done. Per The Federal Savings Bank, the construction-to-permanent conversion is "triggered by the completion of the home — specifically, the issuance of a Certificate of Occupancy (CO)," plus "a final inspection of the property, an updated appraisal in some cases, and confirmation that all draw requests have been reconciled." Until those boxes are checked, you're still in the interest-only draw period described above — the permanent phase doesn't start early.

What happens next depends on which structure you have, from the comparison table above. With a single-close (one-time-close) construction-to-permanent loan, the loan "automatically converts to the permanent mortgage, no second closing required" — and because there's only one closing, "your permanent rate is often locked at the initial closing," before the build even starts. With a two-close construction-only loan, conversion means "a second closing to convert to the permanent mortgage once construction is complete," and the rate is set at that second closing instead — later, but with more room to shop the permanent terms rather than locking them a year or more in advance.

Either way, the payment itself changes shape at conversion: interest-only on the drawn balance becomes a fully amortizing principal-and-interest payment on the full loan amount, over the permanent term you set in the calculator above. Model that payment on its own — different rate, different term, refinance scenarios — with the mortgage calculator, or compare converting against tapping equity on a home you already own with the HELOC vs. cash-out refinance calculator.

How Construction Loan Draws Work

You're only charged interest on money that has actually been disbursed, not on the full approved loan amount. The calculator above splits your build cost into five staged draws — Closing/Land (10%), Foundation (15%), Framing (25%), Rough-In Mechanicals (25%), and Drywall/Completion (25%) — and computes interest only on each draw's outstanding balance for the months it remains outstanding.

Each draw's interest is its dollar amount multiplied by the monthly rate and by the number of months it stays outstanding, so the cost of a draw depends on both size and timing — not on timing alone. The first draw is outstanding the longest but is also the smallest (10%), and the last draw is a quarter of the loan but outstanding for only the final stretch. In practice the middle of the build carries the heaviest single charge: on a 12-month schedule the Framing draw costs more in interest than any other, and the Drywall/Completion draw costs the least. Total construction-phase interest is the sum across all five draws — enter your own build cost, rate, and timeline above to see your figures.

Construction-Phase Interest by Loan Amount

The dollar cost of the interest-only period scales with the loan amount, not just the rate. Three worked examples below, each on the same 5-stage draw schedule described above (10/15/25/25/25%) and a 12-month build — at 7.5%, the midpoint of the 6.5%–9.5% bank construction-loan rate range reported by CoFi Lending for early 2026 (accessed 2026-08-31; private lenders can run to 12%+, which is not modeled here). Enter your own rate and timeline in the calculator above for a figure specific to your build.

Interest scales linearly with loan amount at a fixed rate and schedule — a $500,000 loan costs 2.5× the $200,000 loan's interest because it is 2.5× the principal on the identical draw timing, not because the rate or schedule changed. Rate source: CoFi Lending, “Construction Loan Rates in 2026,” bank financing range for early 2026, accessed 2026-08-31. Your own rate, build cost, and timeline will move these figures — this table is illustrative, not a quote.

Interest-Only During Construction: What You Pay Each Month

During the build you owe interest only, and only on money that's actually been disbursed — the bill is recalculated after every draw, not fixed for the life of the loan. Using this page's own $300,000 / 7.5% / 12-month reference build (same numbers as the loan-amount table above) and the 5-stage, 10/15/25/25/25 draw schedule, the monthly interest-only payment climbs in five steps as the cumulative drawn balance grows:

Each payment is the cumulative drawn balance times the monthly rate (7.5% ÷ 12 = 0.625%) — the identical arithmetic the "How is interest calculated on a construction loan?" FAQ below walks through on a smaller two-draw example. The payment only goes up during the build and never resets down; it stops being interest-only at conversion, when it's replaced by a fixed principal-and-interest payment on the permanent loan (see "How the Conversion to a Permanent Mortgage Actually Works" above). Your own build cost, rate, and timeline will move these figures — use the calculator above for a number matched to your project.

Construction Loan With Land Equity Instead of Cash Down

If you already own the lot — free and clear or with only a small balance left — you don't necessarily need fresh cash for the down payment. Per ValueBuilt Homes, "Land equity is the value you already own in your lot — value you can often apply toward your construction loan down payment/borrower contribution," calculated as "Usable land equity = Appraised land value − any land loan payoff amount." Most construction lenders will accept that equity as some or all of the required down payment. The calculator above models this directly: enter the lot's appraised value as the land figure, answer "I already own it", and leave the cash down payment at whatever you are actually bringing — often $0.

Two caveats worth knowing before you count on it. First, timing: "If you bought the land recently, the lender may use the purchase price instead of today's market value" — land held under about 12 months often gets appraised at cost, not current value, which matters if it's appreciated. Second, the appraisal itself is the risk: "If the land appraises lower than expected, you may need to bring additional cash to meet the required contribution" — land equity reduces the cash you need, but a low appraisal can still leave a gap. Source: ValueBuilt Homes, accessed 2026-09-03.

What It Takes to Qualify for a Construction-to-Permanent Loan

The single-close structure explained above only converts to a permanent mortgage if you qualify for it. FHA's construction-to-permanent program — one of the more accessible paths, and the one covered here since it's the only one with a sourced figure — uses the same credit-score and down-payment rules as any other FHA purchase mortgage. Per HUD Handbook 4000.1, a Minimum Decision Credit Score of 580 or above is eligible for maximum financing — 96.5% loan-to-value, meaning the same 3.5% minimum down payment as a standard FHA purchase. A score between 500 and 579 is capped at 90% LTV instead, a 10% down payment. In practice, many lenders originating construction loans hold applicants to a higher score than FHA's own floor — you may see 640 or more required as lender overlay, not an FHA rule, because of the added risk of an unfinished build. Check with your construction lender directly for its own minimum.

On monthly debt load, HUD's manually underwritten qualifying-ratio table sets a baseline maximum of 31% housing / 43% total debt for a 580+ credit score, with no compensating factors required — but that 43% is a baseline, not a hard ceiling. The same table lets a lender approve up to 37/47, 40/40, or 40/50 when the borrower documents one or two compensating factors: verified cash reserves, a minimal increase over their current housing payment, no other discretionary debt, significant additional income not otherwise counted, or sufficient residual income. Count your existing debts plus the payment the calculator above projects for the permanent phase, not just the interest-only construction payment, since that fully-amortizing P&I figure is what a lender actually qualifies you against. Run it through the FHA loan calculator for the standard-purchase version of these same rules.

These figures are FHA-specific — conventional, VA, and USDA construction-to-permanent programs set their own credit, down payment, and DTI thresholds, which this page does not have a sourced figure for yet. Run your projected permanent payment through the mortgage calculator to see how it fits your monthly budget before you apply. Source: HUD Handbook 4000.1, retrieved 2026-09-14 (Effective Date 09/14/2015, Last Revised 08/14/2019, per the document's own header — handbook sections revise on different schedules; see the online version for any section's current effective date).

Other financing paths to compare

• Mortgage Calculator — estimate the permanent mortgage payment once your build converts.
• HELOC vs Cash-Out Refinance Calculator — compare tapping existing home equity instead of a ground-up construction loan.