Home Construction Loan Calculator 2022CASAPLORERTrusted & Transparent
Our construction loan calculator determines your monthly payments during construction and the monthly mortgage payment during the term of the loan. Our calculator requires basic inputs such as the cost of the land & construction, the estimated value of the completed home, length of the project, and basic loan information.
What You Should Know
- A construction loan allows you to borrow money to build a house from the ground up
- During the home construction process, you make interest-only payments on your construction loan
- Once the house is built, you can either repay the loan in full or refinance your construction loan into a new mortgage
- Interest rates on construction loans are generally higher than interest rates on regular mortgages
What is a construction loan?
More information regarding this loan can be found on our construction loans page.
How do construction loans work?
Construction loans are structured differently than normal loans. In traditional mortgages, the borrower receives the funds and pays back the interest and principal in installments. Whereas in construction loans there is no collateral backing the loan, the lender only provides portions of the loan to the contractor directly.
At each stage of the home building process, an inspection agent from the lender will analyze the progress and will release funds for the next step of the process. Major inspections will include building the foundation, home framework, roofing, and lastly, finishing. Each stage will have a different amount of funds disbursed to the contractor directly and not to the borrower. By the end of the construction, all funds required will be disbursed, following which the borrower must determine whether to pay back the amount or refinance into a mortgage.
How are construction loan payments calculated?
Construction loans require interest-only payments during the life of the construction project. At each stage when more funds are disbursed the interest-only payment will increase.
- Property Status = Purchase
- Cost of Purchasing Land = $100,000
- Estimated Cost of Construction = $400,000
- Estimated Value of Completed Home = $500,000
- Length of Project = 12 Months
- Interest Rate = 3%
First Interest Only Payment = $250 ($100,000 x 3% / 12months)
Final Interest Only Payment = $1,250 ($500,000 x 3% / 12 months)
As the above example demonstrates, initially, the only funds that are borrowed are the $100,000 for the purchase of the land. Hence, the first interest payment is only $250, because it is based on the $100,000 and not the full loan amount of $500,000.
Once the construction project is completed and all the funds have been used, the last interest payment is on the entire loan amount of $500,000 resulting in $1,250.
Once the construction project is over the borrower can repay the entire loan or refinance it into a mortgage. In the above example, if the borrower refinances the amount into a mortgage, the entire $500,000 deducting any down payment will be amortized into a 29-year mortgage. It is 29 years because the first year was spent in construction. Using our amortization calculator, we can calculate the monthly mortgage payment which will be $2,150.
How do I estimate construction costs?
Estimating the construction cost means simply finding out how much it costs to build a house. There are several factors that contribute to the construction cost of a house:
- Land - You will first need to purchase land on which you will build your house on. The cost of the land can range anywhere from $5,000 - $150,000 depending on the square footage and location. You can estimate the cost of land financing by using a land loan calculator.
- Site Work - This includes costs for grading, excavation, construction and anything that is not related to building the physical structure of the house. The cost to do site work can range from $2,000 - $6,000. The exact cost will depend on the size of the land and the condition it is in.
- Floor Plan - You will have to design the layout of the house, its rooms, bathrooms, kitchen, either on your own or with the help of an architect. This can cost you $2,000 to $5,000.
- Foundation - The cost of foundation includes the material and labor for breaking ground on your new home. Depending on the type of foundation, the bill can be from $5,000 to $25,000.
- Framing - One of the more hefty costs, framing includes building the outer structure of the house by fitting together pieces for support. The cost of framing a house will depend on the size of the house and the materials used, however, on average, it costs $20,000 to $50,000 to frame an entire house.
- Exterior - Building the exterior of a house means covering the entire area of the house that is exposed to the outside. The exterior can cost $30,000 to $55,000.
- System Installation - The systems may include the HVAC system, the electrical and the plumbing system. Each of these systems on their own come at a high cost. Therefore, the total cost of system installation can go up to $75,000.
- Interiors - The interior part of a house includes everything inside the home from flooring, painting, and insulation to appliances and plumbing features. Building the structure and exterior is only one part of the job, so be prepared to spend a substantial amount of money and time inside the home as well. The cost of the interiors will depend on the materials and appliances that you choose to use. However, prices range from $50,000 to $150,000.
By allocating how much money you will spend on each category of costs and adding them up, you will get a rough estimate of what construction will cost you.
What happens at the end of a construction loan?
At the end of the construction loan, once the home has been built, you have two options. You can either repay the balance of the loan and the interest payments that you owe in full or you can take another mortgage and refinance your construction loan with your new mortgage.
Are construction loans interest rates higher than typical mortgage rates?
Contrary to regular mortgages, construction loans are considered riskier by lenders since if the borrower defaults on the payments throughout the loan, the lender will not have collateral to collect. This is why lenders charge higher interest rates on construction loans than they do for typical mortgages where they can simply sell the house and get their money back if the borrower defaults on the payments.
What happens when you go over budget on a construction loan?
It can happen that in the process of building your house, some of your actual expenses turn out to be higher than what you had forecasted before you started the project. Some of the typical unforeseen costs include increased price of materials, additional labor needed or special permits required. Unfortunately, if for any reason, your construction project goes over budget, you will have to pay the difference out of pocket, or take out a second loan to cover the difference.
How can I get a construction loan with no down payment?
To get a construction loan with no down payment, you can apply for a:
VA Construction Loan - These loans allow military service members, veterans or their spouses to borrow money to purchase land and build a house on it. With a VA construction loan, you do not have to make any down payment and there is no mortgage insurance.
USDA Construction Loan - These loans offer a number of benefits to borrowers, such as a 0% down payment, low mortgage rates and low mortgage insurance rates. However, the bad news is that only a few lenders offer USDA construction loans and even the ones that do have strict eligibility requirements by the USDA.