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Construction Loan Calculator

How does our construction loan calculator work?

OfferMarket's construction loan calculator primarily focuses on the value of the land and the after repair value (ARV) of the property after construction completion. The construction loan that we provide has two components. One component is for the purchase and the other is for construction. Once you tell us the purchase price of land where you are trying to build, we can begin our calculation.

According to the guidelines our underwriters use, debt investors are comfortable investing in debt which is underwriter with the following standard in mind.

Purchase component

Construction loans are significantly de-risked if the borrower already has permits for the completion of the construction. The permitting process can be long and expensive depending on the characteristics and responsiveness of the local government. Sometime permits can even be a material cost compared to overall cost of the project, between 10% to 20% of the overall project. Thus if the borrower already has permits, underwriters are comfortable lending at 75% loan to value (LTV).

Maximum purchase component = Land purchase price * 75%

If borrower does not have permits for the property, that increases the risk of the deal since getting permits can significantly impact timelines and bottom line of the deal. OfferMarket can still underwrite and take on the deal but the loan to value (LTV) for the purchase component will have to be reduced to 60% loan to value (LTV).

Maximum purchase component = Land purchase price * 60%

Construction component

Maximum construction component = After repair value * 75%

These guidelines are means to balance the risk of the loan between the debt investor and the borrower where borrower has enough 'skin in the game' while still having enough profit in the deal to make it worth their time.

What are construction loan calculators?

A construction loan calculator is a tool that helps borrowers estimate their monthly payments and overall costs associated with a construction loan. It typically takes into account the loan amount, interest rate, loan term, and construction period, among other factors. By inputting these details, borrowers can see how much their monthly payments will be and how much they will owe in total over the life of the loan.

Why is it important to use a construction loan calculators?

Construction loan calculator is a tool used by real estate investors, real estate professionals and real estate developers to calculate the size of a loan that is supported by a real estate deal. It can help them determine how much they can afford to borrow, what their monthly payments will be, and how much they will owe in total. This information can be used to make more informed decisions about the loan and to compare different loan options to find the best one for their needs.

As aforementioned parties scour the market for their next deal, its vital to know the loan size potential deal can support. As they consider the economics of each deal, they use financial planning and projection tools such as construction loan calculators to forecast the chances of a successful outcome of a deal. The wider the margin between real estate developers construction costs and the debt they had to take on to finance the deal, the larger the chance of success.

Construction loan calculator is a useful tool for borrowers to forecast the margin they will have on a potential real estate property. Without using forecasting and planning financial tools such as this, real estate developers run the risk of taking on unprofitable deals that may results in a loss.

In addition to estimating monthly payments and total costs, a construction loan calculator can also help borrowers determine how much they will need to budget for construction-related expenses, such as building materials and labor costs as well as monthly payments to meet their debt obligations. This can help borrowers ensure that they have enough funds to complete the project, meet monthly payments and avoid unexpected expenses.

Construction loan calculators may also take into account factors such as loan-to-value ratio (LTV) and loan fees. Loan fees, such as origination fees and closing costs, can add to the overall cost of the loan, and a calculator can help borrowers estimate these expenses. OfferMarket lists all applicable loan fees inside the "Preliminary loan terms" section without the Loan File. To get a Loan File, start an online construction loan quote

It's important to note that construction loan calculators are just an estimate and may not reflect the exact terms and conditions of a construction loan. Actual interest rates, loan terms, and fees may vary based on the borrower's creditworthiness, the lender's policies, and other factors. Therefore, its important to get a full online construction loan quote when thinking of moving forward with a construction loan.

How to estimate construction costs?

Estimating the construction cost of a house is an important step in planning your build. Here is a breakdown of each of potential factors that may contribute to the overall cost of construction:

  • Land The cost of land can vary significantly depending on the location and square footage of the property. For example, a one-acre lot in a rural area might cost around $5,000, while a quarter-acre lot in a desirable urban neighborhood could cost upwards of $150,000. It's important to factor in the cost of financing the land as well, something we handle for you with our construction loan calculator. Land purchase value is one of the most important factors we look at and can lend up to 75% of purchase component loan to the purchase price if you already have construction permits. If you do not have construction permits, we can only lend up to 60% for the purchase component.
  • Site Work Site work includes all the work that needs to be done before construction of the house can begin. This includes grading the land, excavating for the foundation, and preparing the site for construction. The cost of site work can range from $20,000 to $100,000 depending on the size of the lot and the condition it's in.
  • Floor Plan The floor plan of the house is the layout and design of the interior spaces, including rooms, bathrooms, and the kitchen. You can either design the floor plan yourself or work with an architect to create a custom plan. The cost of an architect's services can range from $20,000 to $100,000 depending on what you have in mind and size of the property.
  • Foundation The foundation is the base of the house, and includes all the materials and labor required to break ground and create the foundation. The cost of a foundation can range from $15,000 to $50,000 depending on the type of foundation, the size of the house, and the location.
  • Framing Framing is the process of constructing the outer structure of the house, including the walls, roof, and floors. The cost of framing depends on the size of the house and the materials used. On average, it costs between $20,000 to $70,000 to frame an entire house.
  • Exterior The exterior of the house includes all the materials and labor required to cover the outer surface of the house, including siding, roofing, and windows. The cost of the exterior can range from $10,000 to $100,000 depending on the materials used and the size of the house.
  • System Installation - The systems of the house refer to the HVAC system, electrical wiring, and plumbing. The cost of installing these systems can be significant, with the total cost ranging up to $75,000 depending on the complexity of the systems and the size of the house.
  • Interiors The interiors of the house include all the finishes, fixtures, and appliances inside the house, such as flooring, painting, and insulation, as well as appliances and plumbing features. The cost of interiors depends on the materials and appliances used, but can range from $50,000 to $150,000.

By breaking down each factor and estimating the costs associated with each, you can get a rough idea of how much it will cost to build your project. However, even the most experienced real estate developers pad their estimates to create a 'margin of safety' for the project. The less experience you have with the specific area, dwelling type or and other important part of the build, the more you should pad your construction cost estimates.

How much construction loan can I afford ?

If you can answer these three questions, we can tell you how much of a construction loan this deal can support. Question number one, what is the purchase price of the land lot for your deal? Next, do you have permits already for your lot? If you do have permits, we can lend up to 75% loan to value (LTV) on the land purchase component. If you don't have permits yet, no problem, we still got you covered, but the loan to value (LTV) that we can do is slightly lower at 60%.

The final piece of information that we need to figure out to get the total loan amount as well as purchase and construction loan components, is the after repair value (ARV) of the deal. Do you have estimates, based on current market conditions and comparable sales data that quantify the value of this deal when your construction is complete and you list it on the market? We ask for the value of the property after construction is complete. We can lend up to 75% loan to value (LTV) based on this value. This LTV is picked because it effectively limits lenders risk in the deal while providing for a profit margin for the real estate developer.

How to calculate construction loan interest ?

The easiest way to know your monthly payments for your construction loan is to use the calculator above, or for more detailed figure get a full online construction loan quote. If you already know your construction loan amount you can use the formula below to calculate your monthly interest payments based on prevailing interest rates.

Monthly loan payment = (construction loan amount * (construction loan interest rate / 100)) / 12

How to calculate a construction loan ?

To calculate construction loan amount that your deal can take on depends on couple of factors. The most important factor is the after repair value (ARV) since this will ultimately determine the profit margin on the deal. To estimate after repair value (ARV) of the deal consider recent comparable sales in the local vicinity. Once you have your value for ARV, multiply this value by 75% to get the maximum construction component of the loan.

The second step is to figure out the purchase component of the loan. If you already have the permits for construction, that de-risk the transaction from the perspective of the debt investors and lenders, thus the purchase component can be up to 75% of purchase price. However, if permit are not yet secured, this increases the risk in the deal and now debt investors and lenders are only willing to provide up to 60% of purchase price for the purchase component.

Once you have the value for both the purchase component and construction component you can add them together to arrive at total construction loan amount. This is the total construction loan amount that is supported by the deal. However, this calculation ignores all factors pertaining to the borrower. Its often that lenders are willing to extend more attractive terms to experienced real estate developers. OfferMarket is not an exception and extends significantly more attractive terms to real estate developers that can demonstrate higher then average creditworthiness (through credit reports and background checks), high liquidity (through bank statements, brokerage account statements or other means) and extensive track record. OfferMarket offers a 100% LTV construction loan to real estate developers that have a proven record of 30 or more rehabs, rentals or flips in the last 10 years, verifiable through closing statements or deeds. If a real estate developer can show 30 or more flips, active or sold rentals in the last 10 years, they won't have to bring any cash to closing while using this program.

While not everyone has 30 or more experience in real estate, we work with individuals of all experience levels, even complete beginners. However, our terms and LTVs get reduced when borrower is less experienced or has lower credit history thus its important to maintain credit scores and other credit metrics to always get the best terms that can be provided.