Our construction loan calculator helps you assess the finances of your construction project.
Construction Loan Calculator
It can determine your monthly payments during your home-building project and monthly mortgage payments after construction is complete. It can also estimate FHA, USDA, and VA construction loans.
How do you calculate a construction loan?
To calculate your construction loan, you need to estimate the cost of your property, the construction costs, and your down payment. Construction Loan Calculator For example, if your lot costs $100,000 and you estimate it will cost about $350,000 to build your home, you’ll need $450,000 to complete your project.
A traditional home loan requires you to make a down payment of 20%. After you make a $90,000 down payment, you get a $360,000 construction loan. This home loan calculator can help you determine how much you can borrow and estimate the monthly payments associated with your loan.
The cost of land largely depends on the location but can be easily determined before applying for a construction loan. Construction costs are much more difficult to accurately determine, Construction Loan Calculator but it is still possible to estimate how much money your project will require.
In 2022, the average cost to build a home in the United States is approximately $284,500 and ranges from $109,500 to $460,000. The average price per square meter for a house to build is around 150 dollars, but in some cases, it can cost up to 500 dollars. The construction price depends on areas, materials, project complexity, and local wages.
What is a construction loan?
With a construction loan, you borrow money to finance your housing project. It is a short-term loan that will eventually be paid off in full or refinanced into a traditional mortgage. Construction loans often differ from other types of loans in that they require a plan and possibly a licensed contractor to be involved in the process.
Construction loans are short-term loans that are usually granted for a maximum of twelve months. They have high-interest rates because these loans are not secured by collateral and are considered risky. In addition, construction loans usually have variable interest rates, so the interest rates can change if the base rate changes.
How do construction loans work?
One of the biggest differences between a construction loan and a traditional mortgage is that a construction loan has no collateral. Since no collateral is provided, lenders require extensive supporting documents describing the type of construction, a clear budget, and a plan.
This means that borrowers must plan the entire construction project before applying for a loan. Once the borrower has all the necessary documentation and a licensed contractor, he/she may be able to apply for a construction loan.
Once the borrower has received approval for a construction loan, he or she can begin work on the project. Construction loans are structured differently than regular loans. With traditional mortgages, the borrower receives the money and pays back interest and capital in installments.
While there is no construction loan collateral to secure the loan, the lender only advances part of the loan directly to the contractor. Once the contractor receives the money, he or she can use the allocated money to complete the part of the project that needs to be completed.
At each stage of a home-building process, a lender reviewer analyzes the progress and releases funds for the next step in the process. The most important inspections are the construction of the foundation, the framing of the house, the roofing, and finally the finishing.
For each phase, a different amount is paid directly to the contractor. All the necessary funds have been paid out at the end of the construction work, after which the borrower must decide whether to repay the amount or refinance it into a mortgage.
Types of construction loans
Construction loans are very different from traditional mortgages. Four different types of construction loans have a similar purpose but differ in terms of terms. They appear similar, but the details of the loan and what happens after it expires are different.
Therefore, it is important to understand how each type of construction loan works to find the best option for a particular project and financial situation.
Construction loans only
This type of construction loan has a similar structure to an interest-free loan with a balloon repayment at maturity. This means that the borrower only pays interest payments during the construction phase and pays the remaining amount as a lump sum at the end of the construction phase.
This is a risky loan because the borrower is responsible for a large lump sum payment. It is possible to take a mortgage on the house to pay off the construction loan.
In this case, the borrower must pay twice the closing costs: once for the construction loan and once for the mortgage. They are paid out twice because the borrower must purchase two separate financial products: a construction loan and a mortgage.
This loan offers flexibility to the borrower as they can pay off their construction loan themselves. In this case, the borrower can save interest in the long term. However, if the borrower plans to take out a mortgage to pay off the construction loan, he or she will have to pay twice the closing costs, which can be quite expensive.
Construction loans to permanent loans
Construction financing combines a construction loan and a mortgage in one product. This means that the borrower only has to pay closing costs once because the loan was originated once. This loan has a similar structure to interest-free loans in that the borrower of a home loan only needs to pay off the interest over a set period and then amortize the principal amount over the years.
This is a good option for people who are sure they will need a mortgage after construction. This type of loan allows borrowers to avoid double closing costs, which can save up to 6% on construction costs.
Construction loan for owners
This type of loan has the same structure as a pure construction loan, but with a construction loan, no contractor is working on the project and receiving the money. In this case, the borrower is the construction contractor who oversees and executes the project.
A homebuilder loan provides direct financing to the owner but may require some proof that the owner is qualified to oversee construction. Apart from the difference in who gets the money, a construction loan is very similar to a pure construction loan. A borrower must obtain this loan from a lender that provides financing in the form of drawings.
When the construction work is finished, the borrower must repay the entire loan amount. Typically, borrowers take out a mortgage to pay off the construction loan when the home is built. Because the borrower receives two separate products, he or she must pay twice the closing costs.
Home renovation loan
This type of loan is called a renovation loan. Although these loans are not construction loans, some can be used to finance small projects or cover parts of a large project. Some unsecured home improvement loans are usually up to $20,000, which may not be enough to build a home but may be enough to complete a small project like building a staircase.
On the other hand, a borrower can obtain secured loans such as a home equity loan or a home equity loan (HELOC). The calculator on this page can be used as a renovation loan calculator by adapting the input to the conditions of the renovation loan.
Construction loan with a low down payment
While the traditional construction loan requires a 20% down payment and high credit requirements, other options are available. Several government programs guarantee home loans to provide access to everyday Americans.
However, these programs contain additional nuances, such as maximum credit limits, income ceilings, or the requirement to live in rural areas. This section takes a closer look at the three types of government construction loans and their eligibility criteria.