Construction Loan Calculator with Draw Schedule
See what a new home build actually costs month to month: the interest-only payment at each drawas your builder pulls down the loan, the total interest you'll pay before move-in, and the permanent mortgage payment once the loan converts.
Construction Phase
Land, materials, labor, permits — everything the finished home costs to build.
20% of the project. Land you already own counts toward this.
Usually variable (prime plus a margin) and above permanent-mortgage rates.
Permanent Mortgage
Final Interest-Only Payment
$2,400
Month 12 of construction, once the full $360,000 is drawn.
Payment After Conversion (P&I)
$2,275
$360,000 at 6.5% over 30 years.
First Month's Payment
$200
Interest on the first $30,000 draw
Average Monthly Payment
$1,300
Across the 12-month build
Total Construction Interest
$15,600
Paid before the first P&I payment
You're putting 20% into the project — in line with what construction lenders expect.
Construction lending is riskier than lending against a finished house: there is no completed home to foreclose on if the build stalls. Lenders offset that by requiring more equity up front than a purchase mortgage does — commonly 20% to 25% of total project cost. Land you already own, free and clear, usually counts toward that equity instead of cash.
Draw Schedule & Interest-Only Payments
Assumes equal $30,000 draws each month. Your real draws follow construction milestones — foundation, framing, drywall — so early months are usually smaller and the ramp is lumpier, but the totals land in the same place.
| Month | Drawn to Date | Remaining to Draw | Interest-Only Payment |
|---|---|---|---|
| 1 | $30,000 | $330,000 | $200 |
| 2 | $60,000 | $300,000 | $400 |
| 3 | $90,000 | $270,000 | $600 |
| 4 | $120,000 | $240,000 | $800 |
| 5 | $150,000 | $210,000 | $1,000 |
| 6 | $180,000 | $180,000 | $1,200 |
| 7 | $210,000 | $150,000 | $1,400 |
| 8 | $240,000 | $120,000 | $1,600 |
| 9 | $270,000 | $90,000 | $1,800 |
| 10 | $300,000 | $60,000 | $2,000 |
| 11 | $330,000 | $30,000 | $2,200 |
| 12 | $360,000 | $0 | $2,400 |
| Total | $360,000 | $0 | $15,600 |
Once the loan converts, the $360,000 balance amortizes like any other mortgage — see it month by month in the amortization schedule.
How Construction Loans Work
A normal mortgage is secured by a house that already exists. A construction loan isn't — the collateral is a set of blueprints and a lot. That single difference explains nearly everything unusual about how these loans behave:
- Money comes in draws, not a lump sum. The lender approves a total budget, then releases it in stages as work is completed — typically lot purchase, foundation, framing, mechanicals, drywall, and final finish. An inspector signs off on each stage before funds move.
- You owe interest only on what's been drawn. In month one you might owe interest on a foundation pour. By the final month you owe interest on the whole balance. The calculator above traces that ramp.
- The term is short. Construction loans run for roughly the length of the build — 12 months is typical. At the end, the balance is due, which means it must convert to or be refinanced into a permanent mortgage.
- Underwriting looks at the builder, too.Expect the lender to review your contractor's license, insurance, financials, and fixed-price contract alongside your own credit and income. A contingency reserve of roughly 5% to 10% of the budget is commonly required for cost overruns.
Because you're financing a project rather than buying a finished product, budget for the same third-party costs a purchase carries — appraisal, title, origination — plus per-draw inspection fees. The closing costs calculator will size the closing side of that for you.
A construction loan is for a house that doesn't exist yet. If the house already exists and you're reworking it, a renovation loan is the closer fit — an FHA 203(k), HomeStyle, or HELOC folds the project budget into the financing instead of funding a build. And if your problem is timing rather than construction — you need the equity from your current home before it sells — a bridge loan covers that gap with short-term, interest-only money.
Typical Construction Loan Draw Schedule
Lenders release the money in draws tied to build milestones, and you only pay interest on the balance drawn so far. Below is a common five-phase schedule for a $400,000 construction loan at 8%over a 12-month build. Watch the interest-only payment ramp up as each draw lands — it starts at $400 a month and peaks at $2,667 in the final months, when the whole balance is outstanding but the house isn't finished yet.
| Phase | Build months | Drawn this phase | Balance after draw | Interest-only payment | Interest this phase |
|---|---|---|---|---|---|
| Foundation & slab | 1–2 | 15% ($60,000) | $60,000 | $400 / mo | $800 |
| Framing | 3–5 | 25% ($100,000) | $160,000 | $1,067 / mo | $3,200 |
| Mechanicals | 6–7 | 20% ($80,000) | $240,000 | $1,600 / mo | $3,200 |
| Drywall & interior | 8–10 | 25% ($100,000) | $340,000 | $2,267 / mo | $6,800 |
| Completion | 11–12 | 15% ($60,000) | $400,000 | $2,667 / mo | $5,333 |
| Total | 12 months | 100% ($400,000) | $400,000 | — | $19,333 |
Add up the right-hand column and this build costs about $19,333 in interestbefore you make a single principal payment — roughly 4.8% of the loan, paid over the year it takes to build. Notice how uneven the monthly cost is: the first draw carries a $400 payment, but by the time the house is drying out you're paying more than six times that. The percentages here are a common starting point, not a rule — your builder's contract sets the actual milestones, and a lender inspector verifies each stage before releasing the next draw. Draw the same balances out period by period, or preview the amortizing payment after conversion, in the amortization schedule, and size the per-draw inspection and origination fees with the closing costs calculator.
Interest-Only Payments During the Build Phase
During construction you pay interest, and nothing else, on the drawn balance. The payment is small at first and largest in the final month, when the entire loan is outstanding but the house isn't finished yet. That last figure — the peak payment shown above — is the number to stress-test, because it's what you'll owe at the moment the build is most likely to be running late.
Two things make that peak harder than it looks. First, construction rates are usually variable, tied to the prime rate plus a margin, so the payment can rise on its own while you're building. Second, most people building a home are simultaneously paying rent or an existing mortgage. Carrying both is the single most common cash-flow surprise in a new build.
An interest reserveis the standard workaround: the lender funds the monthly interest from within the loan itself, so nothing leaves your bank account during construction. It solves the cash-flow problem by borrowing more, which raises the permanent payment you carry for the next 30 years. Worth taking — but price it, don't assume it's free.
Converting to a Permanent Mortgage
When the certificate of occupancy is issued, the construction loan has to go away. How that happens depends on the structure you chose at the start.
Construction-to-permanent: one loan, two payment phases
A construction-to-permanent loan — also called a single-close or one-time-close loan — is one application, one closing, and one set of closing costs covering both halves of the project. You pay interest-only while the house goes up, and when the home is finished the same loan converts to a standard amortizing mortgage at permanent terms agreed before the first shovel hit the ground. Here is the $400,000 build from the draw schedule above, converting at a 6.5% permanent rate:
Phase 1 — Build (months 1–12)
$400 → $2,667 / mo
Interest-only on the balance drawn so far, stepping up at every draw. It averages about $1,611 a month across the build, and none of it touches principal.
Phase 2 — Permanent (30 years)
$2,528 / mo
Principal and interest on the full $400,000 at 6.5%, beginning the month after conversion. This is the payment you actually live with.
The alternative is a two-closestructure: a standalone construction loan, then a separate mortgage taken out to pay it off at completion. You qualify twice and pay closing costs twice, but you aren't locked into a permanent rate set a year before the house existed — which cuts both ways.
Budget against the Phase 2 number, not the Phase 1 one. The early draws are cheap — $400 a month in this example — and it is easy to settle into a payment that was never going to last. Note the wrinkle: when the construction rate is higher than the permanent rate, as it is here, the peak interest-only payment can actually exceed the permanent payment. The shock is relative to the early draws, not the last one. Nothing about the loan is unusual after conversion; it amortizes exactly like any other fixed-rate mortgage, and you can watch the balance fall in the amortization schedule.
One quirk works in your favor: the permanent loan's loan-to-value is measured against the home's appraised value when complete, not what you spent building it. If the finished house appraises above cost, you may land under 80% LTV and skip mortgage insurance entirely — check the threshold with the PMI calculator.
What to Compare Between Construction Lenders
Fewer lenders write construction loans than write mortgages, and terms vary far more than they do on a conventional purchase. Community banks and credit unions are often more competitive here than national lenders. The rate is not the whole comparison — ask every lender the same five questions:
- Single-close or two-close? A second closing can cost thousands. Get the all-in cost of each path, not just the rate.
- How is the construction rate set? Prime plus what margin, and can it move during the build? Ask for the current rate and the cap, if any.
- How long is the permanent rate locked? A single-close loan needs a lock that survives the full build. A 12-month build with a 6-month lock is a problem.
- What do draws cost? How many draws are included, what does each inspection fee run, and how many days from request to funding? Slow draws stall builders.
- What reserves are required? Contingency for overruns, interest reserve, and whether either is inside your approved amount or stacked on top of it.
Before you shop, know what payment you're shopping toward. Size the permanent mortgage you can comfortably carry with the affordability calculator or the mortgage payment calculator, then work backward to a project budget.
Frequently Asked Questions
How does a construction loan work?
A construction loan funds a home that doesn't exist yet, so it can't work like a mortgage that hands you the full balance at closing. Instead the lender approves a total amount and releases it in draws as the build hits milestones — lot, foundation, framing, mechanicals, drywall, finish. An inspector typically verifies each stage before the money is released. You only owe interest on what has actually been drawn, so payments start small and grow as the house goes up. The loan is short-term, usually matching the build schedule (often 12 months), and it has to be paid off or converted to a permanent mortgage when construction finishes.
How do construction loan draws work?
A draw is a partial release of your approved loan amount, paid out in stages as the build reaches agreed milestones rather than as a lump sum at closing. A typical build has five to seven draws — foundation, framing, mechanicals, drywall, and finish. Before each one the lender usually sends an inspector to confirm the work is actually complete, then releases the funds, often directly to the builder. You start owing interest on each draw only once the money goes out, so your interest-only payment steps up as more of the loan is drawn: on a $400,000 loan at 8%, the payment climbs from about $400 a month after the foundation draw to roughly $2,667 once the full balance is out. Most loans include a set number of free draws; additional draws and each inspection typically carry a fee.
What happens at the end of a construction loan?
A construction loan is short-term and comes due when the build finishes — usually around 12 months in. At that point the full drawn balance has to be repaid; you don't keep making interest-only payments. With a single-close construction-to-permanent loan, it converts automatically into a standard amortizing mortgage at terms locked up front, and the payment jumps from interest-only to principal-and-interest. With a two-close loan, you take out a separate permanent mortgage to pay off the construction balance, which means a second closing and a second set of costs. Either way, the lender needs a certificate of occupancy and often a final appraisal before the loan converts or is paid off.
What is a construction-to-permanent loan?
A construction-to-permanent loan (a "single-close" or "one-time close" loan) bundles the construction financing and the permanent mortgage into one loan with one closing. You pay interest-only during the build, then the loan automatically converts to a standard amortizing mortgage when the home is finished. The alternative — a "two-close" structure — is a standalone construction loan that you refinance into a separate mortgage at completion, which means qualifying twice and paying two sets of closing costs. Single-close avoids the second closing and the risk that rates or your finances have moved against you by completion day.
Why are construction loan rates higher than mortgage rates?
If a borrower defaults on a mortgage, the lender forecloses on a finished, sellable house. If a borrower defaults halfway through a build, the lender is left with a half-framed structure that is worth less than the money already spent on it, and finishing it costs more still. That extra risk is priced in. Construction rates are also usually variable — commonly quoted as the prime rate plus a margin — rather than fixed, so the rate can move during the build. The permanent rate you convert to is a separate, typically lower, fixed rate.
Do I pay principal during construction?
No. During the build phase you pay interest only, calculated on the balance drawn so far rather than the full approved amount. Because the drawn balance climbs with each milestone, the interest payment climbs too — the calculator above shows exactly how far. The principal balance is untouched until the loan converts to a permanent mortgage, at which point amortization begins and your payment jumps to cover both principal and interest.
Can I roll the construction interest into the loan?
Often, yes. Many lenders let you build an interest reserve into the loan amount, and the monthly interest is drawn from that reserve rather than paid out of pocket. It is convenient if you are also paying rent or an existing mortgage while the house is being built, but it isn't free: the reserve is borrowed money, so it increases your loan balance and the permanent payment you'll make for the next 30 years. Ask whether the reserve is included in your approved amount or added on top of it.
How much down payment does a construction loan require?
More than a purchase mortgage. Construction lenders commonly want 20% to 25% of total project cost as equity, because there's no finished home securing the loan while it's being built. If you already own the lot free and clear, its appraised value usually counts toward that equity requirement instead of cash — for many borrowers the land is the down payment. Government-backed options exist with lower requirements: VA and USDA construction loans can go to zero down for eligible borrowers, and FHA offers a construction-to-permanent product, though relatively few lenders originate them.