Construction To Permanent Loan Calculator
Calculate your construction loan payments and see the total financing you'll need to build your dream home.
How Construction To Permanent Loan Calculator Works
A construction-to-permanent loan is a specialized financing option that combines a short-term construction loan with a long-term mortgage into one convenient package. During the construction phase, you make interest-only payments on the funds that have been disbursed to your builder, which helps keep your costs manageable while your home is being built.
The calculator helps you understand the total loan amount you'll need based on whether you already own the land, your construction costs, and your down payment. It also shows your monthly interest payments during construction and estimates your future mortgage payment once the home is complete.
This type of loan is particularly useful because it eliminates the need for separate construction and permanent financing. You'll only go through one application process and pay one set of closing costs, saving both time and money compared to getting two separate loans.
Construction To Permanent Loan Calculator Formula Breakdown
Formula
Total loan amount = (Land cost + Construction cost) - Down payment
If you already own the land: Total loan amount = Construction cost - Down payment
Monthly interest payment = (Total loan amount × Interest rate) ÷ 12
Monthly mortgage payment = Loan amount × (Monthly interest rate ÷ (1 - (1 + Monthly interest rate)^(-Total months)))Variables Explained
- Property ownershipWhether you already own the land where you plan to build. If you own the property, you'll only need to finance the construction costs. If you don't own it, you'll need to include the land purchase price in your total loan amount.
- Amount owed on the landThe purchase price or current market value of the land if you already own it. This represents the equity you have in the property that will be factored into your total project cost.
- Cost of constructionThe total estimated cost to build your home, including materials, labor, permits, and other construction-related expenses. Get detailed quotes from licensed contractors to ensure this figure is accurate.
- Down paymentThe upfront cash you'll pay toward the total project cost. Construction-to-permanent loans typically require 20-25% down payment, which is higher than traditional mortgages due to the increased risk during construction.
- Mortgage interest rateThe annual interest rate for your construction-to-permanent loan. During construction, you'll pay interest only on disbursed funds. Once construction is complete, this rate applies to your permanent mortgage payments.
- Length of projectThe estimated time to complete construction of your home, typically 12-18 months. During this period, you'll make interest-only payments as funds are disbursed to your builder at various construction milestones.
- Mortgage lengthThe term of your permanent mortgage once construction is complete, typically 15-30 years. This determines your monthly principal and interest payments after the home is finished and ready for occupancy.
Example Calculation
Given:
- Property ownership: Don't own the land
- Amount owed on the land: $100,000
- Cost of construction: $300,000
- Down payment: $200,000
- Mortgage interest rate: 4.5%
- Length of project: 12 months
- Mortgage length: 30 years
Calculation:
Total project cost: $100,000 (land) + $300,000 (construction) = $400,000
Total loan amount: $400,000 - $200,000 (down payment) = $200,000
Monthly interest rate: 4.5% ÷ 12 = 0.375%
Interest-only payment: $200,000 × 0.375% = $750.00
Monthly mortgage calculation: $200,000 × (0.00375 ÷ (1 - (1.00375)^-360)) = $1,013.37Result:
Total loan amount: $200,000, Interest-only payment: $750.00, Estimated monthly mortgage: $1,013.37Explanation
This example shows a homebuilder who needs to purchase land for $100,000 and build a home for $300,000, putting down $200,000 (50% of the total project cost). During the 12-month construction period, they'll pay $750 monthly in interest only, then transition to a $1,013 monthly mortgage payment.
Tips for Using Construction To Permanent Loan Calculator
- 💡Budget for construction overruns by having 10-15% extra funds available beyond your initial estimates, as building projects commonly exceed original cost projections.
- 💡Get pre-approved for a higher loan amount than your initial estimates to provide flexibility if construction costs increase or you decide to add features during the build process.
- 💡Work with experienced, licensed contractors who have a proven track record with construction-to-permanent loans, as lenders often have specific requirements for builder credentials and insurance.
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