Building a new home can be an exciting yet daunting process. One of the most important steps is securing financing to pay for land, materials, labor and other costs. A construction to permanent loan combines the construction loan and permanent mortgage into one loan product. This structure provides flexibility during the building phase along with long-term affordability. Using an online construction to permanent loan calculator can help you estimate payments and determine if this option makes financial sense.
What is a Construction to Permanent Loan?
Also called a construction-to-perm or C2P loan, this product starts out as a short-term construction loan. During this phase, the lender disburses payments on a draw schedule to the builder You only pay interest on the amount disbursed, not the full loan amount
Once construction completes, the loan converts to a permanent mortgage. This long-term financing amortizes over 15 or 30 years similar to a conventional home loan.
Benefits of construction to permanent loans include:
- One closing meaning lower upfront costs
- Potentially lower interest rates
- Ability to lock in interest rate earlier
- Streamlined process with one lender
Drawbacks involve
- Higher rates than conventional loans
- More complex process than standard mortgages
Construction loans carry higher rates because they pose more risk to lenders. However, construction to permanent loans let you lock in rates ahead of time. You avoid the risk of rising interest rates during the building phase.
How Does a Construction to Permanent Loan Calculator Work?
This online calculator estimates your monthly payments during construction and once the permanent mortgage activates. To use the calculator, you input details including:
- Purchase price or refinance amount
- Construction costs
- Down payment
- Loan term
- Estimated interest rates
Based on these parameters, the calculator estimates your payments in each phase. It also shows your loan balance and equity over time.
During construction, you only pay interest on the distributed amount. These initial payments remain constant because the rate is variable.
Once converted to a fixed-rate mortgage, your payment jumps to cover interest and principal. The loan amortizes over the remaining term.
Seeing side-by-side projections helps you determine if a construction to permanent loan fits your budget. The calculator shows the impact of higher construction loan rates.
Tips for Using an Online Construction to Permanent Loan Calculator
When using this calculator, keep a few tips in mind:
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Check multiple scenarios – Adjust the inputs to see payment options and down payment impacts.
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Estimate construction costs – Research local builder rates to estimate total costs. Account for potential overages.
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Compare loan types – Run the numbers for construction-only and standard mortgages too.
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Use current rates – Input up-to-date interest rates from lenders. Rates vary daily.
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Consider a co-signer – Adding a co-signer with good credit may help you qualify and secure better rates.
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Account for contingencies – Leave room in your budget for unforeseen costs and delays.
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Work with a mortgage pro – Have an experienced loan officer help you run calculations.
Running the Numbers with an Example
Let’s look at an example to see how this calculator works:
- Purchase Price: $200,000
- Construction Costs: $100,000
- Down Payment: 10% = $20,000
- Construction Loan Rate: 7%
- Permanent Loan Rate: 5%
- Term: 30 years
With these inputs, the calculator shows your construction loan is $180,000. It estimates a $1,050 monthly interest payment during the build phase.
Once the permanent mortgage activates, your monthly payment jumps to $1,264 to cover principal and interest.
Using a $20,000 down payment instead of $30,000 boosts the monthly payments. But you save on upfront costs.
Running different scenarios helps you balance monthly costs with upfront savings. Work with a loan officer to test options and find the optimal solution.
Finding the Right Construction to Permanent Loan
If you want to build a custom home, construction to permanent financing offers some advantages. The single-close structure provides flexibility without the hassle of applying for multiple loans. Locking in interest rates gives long-term affordability.
Make sure to shop around with multiple lenders to find the best terms. Local banks and credit unions often offer construction loans and competitive rates. Compare all your mortgage options to determine the most cost-effective route.
Crunching the numbers with an online calculator gives initial estimates. But work closely with an experienced loan officer to turn construction dreams into reality. Use the projections to set your budget and timeline. Then relax knowing your payments fit both your current situation and future goals.
What are Real Estate Construction Loans?
Before delving into the specifics of loan types and how they might work for you, there are some commonalities shared by all real estate construction loans, including:
- banks – while mortgage companies might be most common with securing a conventional mortgage, they tend to shy away from the complexity and risk of real estate construction loans. Banks are where you need to concentrate your efforts seeking this kind of financing, most often, as well as some government programs;
- land – usually, the property on which you will be building is included in the real estate construction loan. It is not required though. If you own property already, you actually may be able to leverage it as collateral, and get better terms for your construction loan;
- plans – you will need to provide detailed plans and timetables to qualify for this type of financing. Expect much more scrutiny, supervision and direct activity with your lender;
- FICO – as a real estate construction loan is often lacking a home as collateral, the borrower’s FICO score is much more important than it might be in other financing.
Most often, construction loans are short-term loans (one year or less) that turn into a longer, more conventional mortgage when building is complete. The larger part is usually 15 or 30 years.
With a construction loan secured, you will receive installment payments for that first year of building. They are on a predetermined draw schedule to cover the costs of building. You will make interest-only payments during the building period, typically based on a variable rate.
Expect your lender to check-in every time before disbursing draw-period funds, to make sure the project is adhering to the schedule pre-approved by you, the builder and the lender. Everything works off schedules and milestones that you had clearly set out to the lender to secure financing.
How the loan works more specifically depends on the type on loan you secure, and who you secure it with.
Current Local Mortgage Rates
The following table shows current 30-year mortgage rates available in . You can use the menus to select other loan durations, alter the loan amount. or change your location.
Construction Loans: What They Are and How They Work (IN DETAIL)
FAQ
How to calculate a construction loan payment?
What is the primary disadvantage of a construction permanent loan?
What is an example of a construction loan estimate?
What is the minimum FICO score for a construction loan?
How long does a construction loan last?
The larger part is usually 15 or 30 years. With a construction loan secured, you will receive installment payments for that first year of building. They are on a predetermined draw schedule to cover the costs of building. You will make interest-only payments during the building period, typically based on a variable rate.
What is a construction loan calculator?
Our construction loan calculator helps you estimate the financials of your construction project. It can determine your monthly payments during your home construction project, and the monthly mortgage payments after the construction is done. It can also estimate the FHA, USDA, and VA construction loans. How Do You Calculate a Construction Loan?
How do I get a home loan for a construction project?
Please enter the cost of the construction project you are planning. Enter the expected appraised value of the home when your construction is complete. This is the calculated required down payment to receive the loan. This is the calculated loan amount for your project. enter the expected interest rate for your loan.
What is a construction to permanent loan?
Construction to permanent loans eliminate the need for two different loans. Instead, you get a single loan to purchase the land and build the home that will convert to a permanent mortgage when construction is complete. Loan terms usually range from 15 to 30 years and have fixed interest rates, similar to other types of mortgage loans.
How do I calculate construction loan payments?
A simple interest calculator is used to calculate Construction Loan Payments, but the method depends on the the type of the loan. How much construction loan can I get? Qualifying for a specific loan amount depends on the LTV and LTC of the specific program, borrower’s credit profile and income as well as documentation level.
How do I get a construction to permanent loan?
Project approval: The lender needs to approve your budgets, schedule, blueprints and more. Architect and contractor approval: You’ll need to hire licensed, professional builders and submit copies of their licenses, certificates and/or resumes to your lender. Construction-to-permanent loans have benefits as well as drawbacks.