Complete Guide to Construction Loans
What is a Construction Loan?
A construction loan is a short-term loan (typically 6-18 months) used to finance building or major renovation projects. Unlike traditional mortgages, funds are disbursed in stages as construction progresses.
Key Features of Construction Loans
- Short-term: Typically 6-18 months during construction
- Interest-only payments: During construction phase
- Draw schedule: Funds released at construction milestones
- Higher rates: Typically 0.5-1% higher than standard mortgages
- Larger down payment: Usually 20-30% required
Current Construction Loan Market (June 2023)
| Loan Type | Avg. Rate | Min. Down |
|---|---|---|
| Construction-to-Perm | 6.25% | 20% |
| Stand-Alone Construction | 6.75% | 25% |
| FHA Construction | 6.00% | 3.5% |
How Construction Loans Work
- Application: Submit plans, budget, and contractor info
- Approval: Based on project feasibility and your credit
- Disbursement: Funds released in 4-6 stages (draws)
- Construction: Interest-only payments during build
- Conversion: To permanent mortgage after completion
Construction Loan Calculator: How It Helps
Our calculator helps you:
- Estimate monthly payments during and after construction
- Compare different loan terms and rates
- Understand total interest costs
- Plan your down payment strategy
- Get AI-powered recommendations