Construction Loan Calculator
Calculate interest-only payments during the construction phase, see how your draw schedule affects monthly costs at each stage, and compare your permanent mortgage payment after conversion. Covers construction-to-permanent loans and standalone construction loans — free, private, no sign-up required.
Construction funds are disbursed in draws as each phase completes. Interest accrues only on funds already drawn — your payment grows as more is disbursed.
| Phase | Draw % | Draw Amount | Cumulative Balance | Monthly Interest | Duration (mos) | Phase Interest Total |
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| Metric | One-Close (C2P) | Two-Close (Separate Loans) | Difference |
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How Construction Loans Work: The Draw Schedule Explained
A construction loan is a short-term, interest-only loan used to finance the building of a new home or major renovation. Unlike a standard mortgage where you borrow the full amount upfront, a construction loan releases funds in stages called draws — disbursed as each phase of construction is completed and inspected. According to the Consumer Financial Protection Bureau (cfpb.gov), borrowers only pay interest on the portion of funds already drawn, not the entire loan amount, which keeps early payments low while the home is being built.
The five standard draw phases for new construction are: Foundation (15%) of the loan amount disbursed once footings, foundation walls, and slab work are complete; Framing (35%) disbursed when the structural frame, roof sheathing, and exterior walls are up; Rough-In (25%) covers plumbing, electrical, and HVAC rough work; Finish Work (20%) covers drywall, insulation, cabinetry, and flooring; and Final Draw (5%) released after a certificate of occupancy is issued and the punch list is complete. Each draw is preceded by a lender inspection to verify progress before funds are released.
Construction-to-Permanent vs Two-Close Loans
Borrowers building a new home have two primary financing paths. Understanding the cost and process difference is critical before breaking ground.
A construction-to-permanent (C2P) loan, also called a one-close or single-close loan, combines the construction phase and the permanent mortgage into a single loan closing. You lock in the permanent rate and terms upfront, pay closing costs only once, and the loan automatically converts to a standard amortizing mortgage when construction is complete. The advantage is rate certainty — you know your long-term payment before a shovel hits the dirt. The drawback is that rates are sometimes slightly higher because the lender carries more risk during construction. According to HUD (hud.gov), one-close loans are common for FHA-backed new construction financing.
A two-close loan uses a standalone construction loan first, which is paid off at completion with a separate permanent mortgage. This requires two closings, two sets of closing costs, and a second qualification process. However, it gives you flexibility to shop for the best permanent rate after construction ends — useful if rates are expected to fall. The total closing costs for a two-close loan are typically $3,000–$8,000 higher than a one-close loan depending on loan size and state.
Construction Loan Rates and Qualification in 2026
Construction loans are priced differently than standard mortgages. Most lenders set construction loan rates at prime rate plus 1% to 3%, making them variable-rate products tied to the Federal Reserve's benchmark. With the prime rate at 7.5% in mid-2026, construction loan rates typically range from 8.5% to 10.5% for qualified borrowers.
Qualification standards are stricter than for standard purchase mortgages. Lenders typically require: a minimum credit score of 680–720 (720+ preferred), a debt-to-income ratio below 45%, a down payment of 20–25% of the total project cost (land + construction), detailed architectural plans and specifications, a signed contract with a licensed general contractor, and a builder's risk insurance policy. The appraiser must value the home as completed based on plans and comps, which introduces additional appraisal complexity. Some portfolio lenders offer construction loans with as little as 10% down for borrowers with excellent credit and low DTI ratios.
Tips for Managing Construction Loan Costs
Construction projects frequently run over budget — the National Association of Home Builders (NAHB) reports that 57% of new builds experience cost overruns averaging 10–15%. Here are strategies to control your construction loan costs:
- Add a 10–15% contingency buffer to your construction budget before applying for the loan. Most lenders require this and it prevents costly mid-project loan modifications if unexpected expenses arise.
- Request the shortest construction period possible. Construction loan rates accrue daily, so every month you shave off the timeline reduces your total interest cost. A 9-month build costs materially less in construction interest than a 12-month build.
- Time your draws strategically. Since interest accrues only on drawn funds, avoid drawing the full amount early if materials or labor won't be used immediately. Coordinate draw timing closely with your builder.
- Lock your permanent rate early if using a C2P loan. Rate lock windows for one-close loans typically extend 12–18 months, providing protection against rising rates during construction. Rate lock extension fees apply if construction is delayed.
- Choose a builder with strong lender relationships. Experienced builders know how to time draws for lender inspections efficiently, reducing delays that extend your construction period and increase interest costs.