Construction Loan Calculator
Calculate construction loan payments, interest costs, and total project financing. Construction loans provide funds as work progresses through scheduled draws, with interest-only payments during construction.
Construction Phase
Permanent Mortgage
Project Summary
Construction Loan Requirements and Process
Loan Characteristics
- Interest-Only During Construction: Pay only interest on drawn funds
- Draw Schedule: Funds released as construction milestones completed
- Construction-to-Permanent: Converts to permanent mortgage when complete
- Higher Interest Rates: 1-2% above conventional mortgages
- Appraisal Required: Property and construction cost appraisal
- Inspection Requirements: Regular construction inspections
Draw Schedule
- Foundation: 10-15% of construction cost
- Framing: 25-30% of construction cost
- Mechanicals: 40-50% of construction cost
- Finishing: 75-80% of construction cost
- Final: 100% upon completion
Qualification Requirements
- Credit Score: 680+ typically required
- Down Payment: 20-25% of total project cost
- Debt-to-Income: 45% maximum ratio
- Contractor: Licensed and insured contractor required
- Plans & Permits: Approved construction plans and permits
- Contingency Fund: 5-10% for unexpected costs
Loan Types
- Construction Only: Short-term financing for building
- Construction-to-Permanent: Converts to permanent mortgage
- Renovation Loans: For remodeling existing homes
- Speculative Building: For building without buyer
Understanding Construction Loans
Construction loans provide financing for building new homes or major renovations. Unlike traditional mortgages, construction loans disburse funds gradually as work progresses, with interest-only payments during the construction phase.
How Construction Loans Work
Construction loans are short-term loans (typically 6-18 months) that convert to permanent mortgages once construction is complete. Funds are released in draws based on construction progress, ensuring lenders that money is used appropriately.
Interest-Only Payments
During construction, borrowers pay only interest on the amount of money that has been drawn. This makes construction loans more affordable during the building phase when no principal payments are required.
Draw Process
Funds are released in stages based on completed work. Each draw requires inspection by the lender or a third-party inspector to verify that work meets construction standards and loan requirements.
Construction-to-Permanent Conversion
Most construction loans convert to permanent mortgages at the end of the construction period. The permanent loan may have a different interest rate and terms than the construction loan.
Cost Considerations
Construction loans typically cost more than traditional mortgages due to higher interest rates and fees. Additional costs include construction appraisals, permits, and inspection fees.
Tip: Construction loans require careful planning and a reliable contractor. Always include a contingency budget for unexpected costs. Work with lenders experienced in construction financing for the best terms and process guidance.