Loan Types / Construction
Construction Loan Calculator
A construction loan finances building a home, then converts to a standard mortgage. Learn how draws work and estimate the permanent payment with the calculator.
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How construction loans work
- Two phases: a short-term construction phase, then a permanent mortgage.
- Draws: funds release in stages as the build hits milestones.
- Interest: often interest-only during construction, on the amount drawn.
- Conversion: a one-time-close loan rolls into a permanent FHA, VA, USDA, or conventional mortgage.
Estimate the permanent payment
Once built, the loan behaves like a standard mortgage. Use the calculator with your expected loan amount and rate to estimate the long-term payment, then talk to a loan officer about the construction phase.
See your real numbers. The calculator estimates this loan next to every other type, side by side.
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Construction-to-permanent vs a two-time close
There are two ways to finance a build, and the difference decides how many times you pay closing costs and how many times you have to qualify.
| Construction-to-permanent | Two-time close |
|---|
| Closings | One | Two |
| Sets of closing costs | One | Two |
| Times you qualify | Once, up front | Again at conversion |
| Rate risk during the build | Locked or capped at the start on most programs | You take market rate at conversion |
| Also called | Single-close, C2P, construction-to-perm | Stand-alone construction loan |
A construction-to-permanent loan is the common choice because one closing means one set of fees and no second underwrite if your income or credit changes mid-build. A two-time close can make sense when you expect rates to fall or the builder timeline is uncertain.
How draws and interest-only payments work
You do not receive the full loan amount on day one. The lender releases money in draws as stages finish, and an inspector verifies each stage before funds are sent. You pay interest only on the money actually drawn, so the payment climbs through the build.
A $400,000 build at 7.75% during construction
| Stage | Draw | Balance drawn | Interest-only payment |
|---|
| 1. Foundation | $80,000 | $80,000 | about $517/mo |
| 2. Framing | $80,000 | $160,000 | about $1,033/mo |
| 3. Mechanicals and dry-in | $80,000 | $240,000 | about $1,550/mo |
| 4. Interior finish | $80,000 | $320,000 | about $2,067/mo |
| 5. Completion | $80,000 | $400,000 | about $2,583/mo |
When the home is finished and the certificate of occupancy is issued, the loan converts to a normal amortizing mortgage. At 6.77% over 30 years, that same $400,000 becomes a principal and interest payment of about $2,600 a month, plus taxes, insurance, and any mortgage insurance.
Budget for the interest you pay while building
Interest during construction is a real cost that does not show up in the sale price of a finished home. On the schedule above, a twelve-month build costs roughly $18,000 to $20,000 in construction-period interest. Some lenders let you finance that reserve into the loan; others expect it out of pocket.
What lenders look for on a construction file
- A licensed, approved builder with a signed fixed-price contract and a detailed cost breakdown.
- Complete plans and specs so the appraiser can value the finished home. The loan is sized off that as-completed value.
- A contingency reserve, commonly 5% to 10% of the build cost, for overruns.
- Land equity or a down payment. Land you already own often counts toward the required equity.
- A realistic timeline. Most construction terms run 9 to 18 months, and extensions are not free.
Frequently asked questions
What is a construction loan?
A short-term loan that funds building a home in stages, then converts to a permanent mortgage once the home is complete.
How do construction draws work?
The lender releases money in stages as the build reaches milestones, and interest is often charged only on the amount drawn.
Can I get one loan for build and mortgage?
Yes, a one-time-close construction-to-permanent loan combines both, which reduces closing costs and paperwork.
What down payment do construction loans need?
It varies by program and lender. A loan officer confirms the requirement for your build.
Important disclosures. LoanFitCalc is a free educational tool that provides estimates only. It is not a loan, a loan approval, a commitment to lend, a rate lock, or an offer to make a loan, and it does not provide financial, legal, or tax advice or recommend a specific loan for you. Mortgage insurance rates, funding and guarantee fees, loan limits, taxes, and insurance figures are typical published values used for estimation and are subject to change. Program eligibility rules are summarized and simplified. Actual terms depend on your full application, credit, property, and lender underwriting. Consult a licensed mortgage loan originator before making any decision. LoanFitCalc is an independent educational website and is not a lender. ⌂ Equal Housing Opportunity
