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Construction Loan

What does building cost you in financing?

Enter your land and build costs, how long the build will take, and your two loan rates. We’ll estimate the interest you’ll owe while the home is being built, the cash you’ll need, and your monthly mortgage payment once you move in.

  1. One loan, two phases

    Building a home is usually financed with a : a short-term loan that pays the builder, which then turns into a regular mortgage when the home is finished.

  2. The money goes out in stages

    The lender pays your builder in as each stage is done. During the build you make payments on what has been paid out so far, usually at a higher rate than a regular mortgage.

  3. Then it becomes a normal mortgage

    You either pay the build-phase interest monthly or let an add it to your loan. After the move-in, you make regular payments that pay the loan off over its term.
Your builder’s contract gives the build cost and timeline, and a lender that offers construction loans can quote both rates. Buying new construction covers the whole process.
The project

What the land and the build cost, how much you'll put down, and how long building will take.

$
$
%
months
The loan

One rate while the home is built and another once it becomes your regular mortgage. A lender quote gives both.

%
%
yr

Interest during the build

Add to loan: an interest reserve covers it (most common). Pay monthly: you pay it yourself each month during the build.

Interest you’ll owe during the build

$15,583

That’s the interest that builds up over the 10-month build. An adds it to your loan, so the only cash you pay during the build is the $110,000 down payment. Once the home is finished, the loan becomes a regular 6.5% mortgage at $2,880 a month (on a $455,583 balance that includes that interest).

Total project cost

$550,000

$100,000 land + $450,000 build

Down payment

$110,000

20% of the project cost

Interest during the build

$15,583

about $1,558/mo, added to your loan

Cash you pay during the build

$110,000

down payment only (interest goes on the loan)

Monthly mortgage payment

$2,880

principal and interest at 6.5% for 30 yrs

Total interest, build plus mortgage

$596,655

if you keep the loan all 30 years

What this means

You’d put $110,000 down and borrow $440,000 for a $550,000 project. You don’t owe interest on the full loan right away: the build money goes out as work is done, so you pay interest on about $220,000 on average. At 8.5% over 10 months, that comes to $15,583.

Adding that interest to the loan keeps your cash during the build at $110,000, but raises your monthly mortgage payment to $2,880, versus $2,781 if you paid the interest as you went. The build time and the build-phase rate drive this number most.

The mortgage payment shown is principal and interest only. Property tax, home insurance, and any HOA dues come on top, and the build-phase rate is usually variable, so it can change before you finish. See the mortgage calculator for the full monthly cost.

What would lower your build-phase interest

Finish in 8 months instead of 10−$3,117
Get a 7.5% build rate instead of 8.5%−$1,833
Put 30% down instead of 20%−$1,948

How construction loans work

A (one-close) loan is the most common structure: one closing covers both the construction loan and the permanent mortgage. That saves a second round of closing costs ($5,000 to $10,000) compared with a two-time close.

The lender pays out funds in stages, called , as the build progresses (foundation, framing, roof, and so on). You only pay interest on the amount paid out so far, not the full loan, so interest costs build up over the construction period.

Most lenders fund an at closing that covers the projected construction interest and adds it to the loan balance. Your only cash during the build is then the down payment. Some lenders still require monthly interest payments; use the toggle above if that’s your case.

How we estimate it: your down payment is applied to the land first. Whatever you borrow for the land is paid out in full at closing, and the rest of the loan is paid out evenly over the build, so the average balance you pay interest on is the land portion plus half of the build portion. This tracks a typical builder draw schedule more closely than assuming half the whole loan.

When construction is complete and the home passes inspection, the loan converts to your permanent mortgage with regular payments at the permanent rate.

This calculator doesn’t model draw fees ($150 to $300 each, which can add up), construction loan (typically 1% to 2% of the loan), inspection fees during draws, the small extra interest charged on the interest reserve itself, contingency reserves (5% to 10% of build cost is typical), or the risk that the variable construction rate rises. Build in a buffer.
loan balance Build phase interest-only payments on what’s been paid out After move-in principal and interest payments average balance land loan + half the build loan build money, paid out in draws land loan, paid out at closing Add to loan Pay monthly closing home finished paid off the build the mortgage term
You owe interest only on money that has gone out, so during the build you pay interest on the shaded area. The calculator spreads the build money evenly, which puts your average balance at the land loan plus half the build loan. With Add to loan, that build interest joins your balance at move-in and raises every mortgage payment after.

Results are estimates based on your inputs and the assumptions on this page, not quotes or advice. A lender, servicer, or tax advisor will give you different numbers. Disclaimer

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Terms used on this page

A construction loan pays out in stages and charges interest only on what has been paid out, so it comes with terms a regular mortgage doesn’t use.

Construction loan
A short-term loan that pays your builder while a new home is built. Rates are usually variable and higher than a regular mortgage because an unfinished house is riskier for the lender.
Construction-to-permanent (one-close) loan
A single loan that funds the build and then converts to a regular mortgage when the home is finished, so you only close and pay closing costs once.
Draw
A payment the lender releases to your builder as each stage of construction is completed. You only owe interest on the money paid out so far.
Interest-only payment
A payment that covers only the interest owed, without reducing the balance. Construction loans usually require these during the build.
Interest reserve
Money set aside inside the loan to pay the interest due during construction. It saves you cash during the build, but the interest is added to your loan balance.
Permanent rate
The interest rate on your regular mortgage after the home is finished. On most construction-to-permanent loans it is locked when you first close.
Principal and interest
The loan part of your monthly mortgage payment. Principal pays down what you borrowed; interest is the lender’s charge for lending it. Property tax and insurance come on top.
Down payment
The share of the project cost you pay yourself. Construction loans typically require 20% to 30% down, and land you already own can often count toward it.
Closing costs
Fees due when the loan is finalized, such as lender fees, appraisal, and title insurance. A one-close loan avoids paying them a second time when the build is done. More

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