It can be challenging to make payments on both the current and future homes. Including an interest reserve account in a construction to permanent loan will help since during construction only current housing expenses are paid.
The biggest impact of an interest reserve account is in qualifying for the loan since only the future payment is used in qualifying ratios.
Typically, Fix to Flip and Hard Money loans do not offer interest reserve accounts.
The construction loan amount is based on the value of the lot or existing house, if a major remodel project, plus all the soft and hard construction costs and interest reserves, if applicable.
Ratios used to calculate the loan amount are LTFV (Loan to Future Value), sometimes called ACV (After Completion Value), and LTC (Loan to Cost).
Construction to Permanent Loan Calculator
This same calculator is used to calculate the loan amount.
After the project's completion, the loan converts to a permanent 15 or 30-year fixed or adjustable mortgage loan.
Almost every lender will use a slightly different version of this calculator to determine the loan amount for a construction loan.
It is almost impossible to arrive at the loan amount, and cash requirement with a single calculation as the variables are numerous. There is always a need to review the numbers and readjust them to calculate the final loan amount.
Remember that LTV (Loan to Value Ratio) is based on the future value, and that value will depend on the construction loan program, which will also be governed by the LTC (Loan to Cost Ratio).
All fields are required, even if "zero".
Click on the question mark icons for an explanation of the field's requirements.
Construction Loan Payment Calculator
How to Calculate Interest Only Payments of a Home Construction Loan During Construction
Aconstruction loan's payments are based on the loan amount drawn during construction. If Hard Money or Fix and Flip loan, interest is charged on the entire loan amount.
It is, therefore, difficult, if not impossible, to accurately estimate the payments as the loan amount is subject to change at any time.
Furthermore, no payments are usually made during construction but applied to the payment reserve account set up and included in the loan amount. A good approximation will be to:
Take 70% of the loan amount.
Use this calculator to figure out monthly payments.
Multiply the result by 12 to get the total approximate interest.
Fix and Flip or Hard Money loan Calculator
Take the full amount of the loan.
Use this calculator to figure out your monthly payments.
Multiply by the term of the loan.
A basic and straightforward to use Construction Loan Amount Calculator is available here.
Construction loans that include an interest reserve account:
Help your cash flow, as you are not saddled with two housing payments.
Allow you to qualify for a larger loan since your debt ratio is not included in current housing expenses.
Construction loans have much more detailed calculations than a simple purchase or refinance mortgage loan amount.
Construction lenders calculate the actual construction loan amount after you answer some simple questions.
Qualifying for a mortgage loan involves debt ratio calculations that vary slightly from one financial institution to the next. In most cases, the borrower's debt ratio is analyzed using the fully amortized payment.
New Home Construction
Construction and take out financing of ground up residential, owner occupied properties, up to four units.