Construction Loan Calculator 2026

A construction loan is a short-term loan (typically 9 to 18 months) that funds the building of a new home or major renovation. Unlike a regular mortgage, the lender does not give you the full loan amount upfront — instead, they release money in stages called "draws" as the build progresses. You only pay interest on the amount that has been disbursed, not the full loan.

Construction loan rates are typically Prime + 1% to 2%, which works out to roughly 8.5% to 10.5% in April 2026 (Prime is currently 7.50%). Rates are higher than regular mortgages because the loan is riskier — there is no completed house to use as collateral until the build finishes. Some lenders offer rate discounts for borrowers with strong credit and large down payments.

A regular mortgage funds the purchase of an existing home and pays out the full amount at closing. A construction loan funds new construction in stages, charges interest only on disbursed amounts during the build, and either converts to a permanent mortgage (one-time close) or requires a separate refinance (two-time close) when the home is finished.

A construction-to-permanent loan (also called C2P or one-time close) combines both phases into a single loan with one closing. During construction, you pay interest only. When the home is finished, the loan automatically converts to a regular 15- or 30-year mortgage at a rate locked in at the start. The advantage is one set of closing costs and no requalification mid-build.

Most construction loans require 20% to 25% down, which is higher than the 3% to 5% required for many conventional mortgages. Some lenders accept 10% down for highly qualified borrowers (740+ credit, low debt-to-income, strong reserves). VA construction loans allow 0% down for eligible veterans, and USDA construction loans allow 0% down in qualifying rural areas.

The lender releases funds in 4 to 6 stages as construction milestones are completed: foundation, framing, roof and dry-in, mechanicals (HVAC/plumbing/electrical), drywall and finishes, and final inspection. Before each draw, the lender sends an inspector to verify the work is done. Your interest payment grows each month as more of the loan is disbursed.

It depends on the loan type. Most one-time close (construction-to-permanent) loans lock the rate at the start of construction, which protects you if rates rise but locks you out if rates fall. Some lenders offer a "float-down" option that lets you re-lock once during construction if rates drop significantly (typically requires a fee). Two-time-close loans do not lock the permanent rate until you refinance after the build.

Most lenders require a minimum 680 FICO for conventional construction loans, with 720+ getting the best rates. FHA construction loans accept 580+ FICO with 3.5% down (or 500+ with 10% down). VA construction loans typically require 620+. Construction loans involve significantly more lender risk than regular mortgages, so credit standards are stricter.

Construction loans take longer to underwrite than regular mortgages — typically 30 to 60 days. The lender has to underwrite both you (income, credit, assets) and the project (builder credentials, fixed-price contract, plans, specifications, appraisal of the as-completed value). Allow extra time and start the application 2 to 3 months before you want to break ground.

Beyond standard mortgage documents (W-2s, tax returns, bank statements), construction loans require: detailed architectural plans, written specifications, a fixed-price contract with a licensed builder, the builders financial statements and references, a construction timeline, an "as-completed" appraisal, and proof of liability and builders risk insurance. Owner-builder loans (where you act as your own contractor) are much harder to qualify for.

Yes. Once the construction-to-permanent loan converts to a regular mortgage, you can refinance it like any other mortgage — typically after 6 months of seasoning. This is useful if rates have dropped significantly since you locked the construction rate, or if you want to switch from a 30-year to a 15-year term. Standard refinance closing costs apply.

Construction loans are sized at the start of the project based on the fixed-price contract. If costs run over (which happens on roughly 30% of builds), you typically have to cover the overage out of pocket — the lender will not increase the loan mid-build without re-underwriting. Always budget a 10% to 20% contingency reserve in cash on top of the loan amount before breaking ground.