Construction Loans: A Complete Guide
A construction loan is a short-term loan used to finance the building of a home or other real estate project. These specialized loans typically have variable rates and convert to permanent mortgages once construction is complete. Our construction loan calculator helps you estimate all costs associated with your building project.
How Construction Loans Work:
- Short-term financing: Typically 6-18 months during construction
- Interest-only payments: You pay only interest during construction
- Draw schedule: Funds are released in stages as construction progresses
- Conversion: Loan converts to a traditional mortgage after completion
Key Features of Construction Loans:
- • Higher interest rates than traditional mortgages
- • Typically require 20-30% down payment
- • Require detailed construction plans and budget
- • Lender inspects progress before releasing funds
- • May require builder approval
- • Shorter approval timeline than traditional loans
Types of Construction Loans:
Construction-to-Permanent
Converts automatically to a mortgage after construction. One closing, lower fees.
Stand-Alone Construction
Requires separate permanent financing. Two closings, more paperwork.
Renovation Loans
For major renovations on existing properties. Similar structure.
Owner-Builder Loans
For homeowners acting as their own general contractor. Higher requirements.
Frequently Asked Questions
How much can I borrow with a construction loan?
Most lenders offer construction loans covering 75-90% of the total project cost (land + construction). Our calculator helps you determine the exact amount based on your specific project details.
What credit score is needed for a construction loan?
Most lenders require a minimum credit score of 680 for construction loans, with better rates available for scores above 720.
How are construction loan payments calculated?
During construction, you typically make interest-only payments on the amount drawn. Our calculator shows you exactly what to expect during both construction and permanent phases.