Construction Loan Calculator
See how your payments grow with each construction draw, then convert to a permanent mortgage. Model the full cost of building your home.
Project Costs
Loan Terms
Draw Schedule
Draw percentages must total 100%
Monthly Costs
| Interest During Construction | — |
| Interest Over Permanent Term | — |
| Total Interest (Both Phases) | — |
| Total Paid to Lender | — |
Show amortization schedule
How Construction Loans Work #
A construction loan finances the building of a new home in two distinct phases. During the construction phase, the lender releases funds in stages called draws as your builder completes predetermined milestones — foundation, framing, mechanical systems, and so on. You pay interest only on the amount that has been drawn, so your monthly payment starts low and increases with each draw as more money is released.
For example, on a $300,000 construction project with six draws, your first draw might release 15% ($45,000 plus land costs). At 8.5% interest, your initial monthly payment would be around $1,027. By the time the final draw releases the remaining funds, your interest-only payment could reach over $2,200 per month — even though you have not yet started paying principal.
After construction is complete, the loan converts to a permanent mortgage. Your payment type changes from interest-only to fully amortizing principal and interest, spread over your chosen term (typically 30, 20, or 15 years). The permanent rate is usually lower than the construction rate, which partially offsets the increased payment from adding principal repayment.
Understanding Draw Schedules #
The draw schedule is the backbone of a construction loan. It determines when money is released and directly controls how your payments change over time. A typical six-draw schedule covers these phases:
Site Work & Foundation (10–15%): Excavation, grading, pouring the foundation. This first draw often includes land acquisition costs if the land is part of the loan. Framing (20–25%): The structural skeleton of the home — walls, roof trusses, and sheathing. This is usually the largest single draw. Mechanical (15–20%): HVAC, plumbing, and electrical rough-in. Exterior (10–15%): Siding, roofing, windows, and doors. Interior (15–20%): Drywall, flooring, cabinets, and fixtures. Final (5–10%): Landscaping, driveway, final inspections, and punch-list items.
Each draw requires a lender inspection to verify the work has been completed before funds are released. This protects both you and the lender. Some lenders allow flexible draw schedules, while others use fixed percentages. The calculator above lets you adjust the percentage for each phase to match your builder's plan.
Construction-to-Permanent vs Construction-Only #
There are two main types of construction loans. A construction-to-permanent (C2P) loan — also called a single-close loan — automatically converts to a permanent mortgage when construction is complete. You pay one set of closing costs and lock in your permanent rate at the beginning. This is the loan type modeled by this calculator.
A construction-only loan (two-close) requires you to obtain a separate mortgage after construction. This means two applications, two sets of closing costs, and the risk that rates may have changed by the time you need the permanent loan. Construction-only loans may offer slightly lower construction rates, but the convenience and rate certainty of a C2P loan makes it the more popular choice for most borrowers building a primary residence.
Tips for Managing Construction Costs #
Build in a contingency reserve. Industry professionals recommend setting aside 5–10% of the construction budget for unexpected costs. Change orders, material price increases, and weather delays can all push your project over budget. A contingency reserve means you will not need to scramble for additional financing mid-build.
Manage builder change orders carefully. Every change after construction begins — moving a wall, upgrading fixtures, adding a window — generates a change order that increases cost and potentially delays the timeline. Each delay extends your interest-only payment period, adding to total construction interest. Get your plans as final as possible before breaking ground.
Lock your permanent rate early. Most C2P loans allow you to lock the permanent rate at closing. In a rising rate environment, this protects you from paying more after a 12–18 month build. Even if rates drop, some lenders offer a one-time float-down option that lets you take advantage of lower rates before conversion.
Frequently Asked Questions #
What is a construction loan?
A construction loan is a short-term loan used to finance building a new home. Funds are released in stages called draws as construction milestones are completed. During the build phase, you make interest-only payments on the amount drawn. After construction, the loan converts to a permanent mortgage with full principal and interest payments.
How are construction loan payments calculated?
During construction, payments are interest-only on the outstanding (drawn) balance. As each draw releases more funds, your monthly payment increases. For example, after the first draw of $145,000 at 8.5% interest, the monthly payment is about $1,027. After the second draw increases the balance to $220,000, the payment rises to about $1,558.
What is a construction-to-permanent loan?
A construction-to-permanent (C2P) loan is a single-close loan that automatically converts from a construction loan to a permanent mortgage when building is complete. This saves borrowers from paying two sets of closing costs compared to getting separate construction and mortgage loans.
How much down payment do I need for a construction loan?
Conventional construction loans typically require 20–25% of the total project cost (land plus construction) as a down payment. Government-backed alternatives have lower minimums: FHA construction loans allow as low as 3.5% down, and VA construction loans offer 0% down for eligible veterans — though both come with additional requirements, limited lender availability, and longer approval timelines.
What is a draw schedule?
A draw schedule is a predetermined plan for releasing construction loan funds in stages tied to building milestones. Common stages include site work and foundation, framing, mechanical systems, exterior finishing, interior finishing, and final landscaping. Each draw requires a lender inspection before funds are released.
What happens to my interest rate when construction ends?
When construction ends, the loan converts from the construction rate (typically variable and higher) to your locked permanent rate (typically fixed and lower). Your payment type changes from interest-only on the drawn balance to full principal and interest on the total loan amount, amortized over your chosen term.