Construction Loan Calculator
Project cost, interest on what is actually drawn, and the number that decides most ground-up deals — what one month of delay costs.
Project cost
Construction loan
Interest accrues on what has been drawn, not on the commitment. Land is advanced at closing and carries the whole build; construction draws are modelled as a linear curve, which averages half the balance.
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Assumptions
Profit at sale
$97,611
15.62% margin · 107.62% on equity
Cost of one month's delay
$2,470
Interest on the drawn balance, plus holding
| Contingency held | $28,500 |
|---|---|
| Total project cost | $453,500 |
| Loan amount | $362,800 |
| Equity required | $90,700 |
| Average drawn balance | $219,400Not the full loan — draws build over the schedule |
| Construction interest | $19,198 |
| Points & holding | $10,942 |
| Total capitalized cost | $483,640 |
| Net sale proceeds | $581,250 |
| Break-even sale price | $520,042 |
Estimates only. A construction budget priced before drawings are complete is a guess, draw schedules and inspection timing vary by lender, and the sale price is a forecast. Not a loan commitment or an offer of credit.
The schedule is a cost line, not a timeline
Ground-up construction pro formas are usually built around two numbers: what it costs to build and what it sells for. Both are estimates, and the gap between them looks like profit. What that framing leaves out is that the gap shrinks every month the project runs long — and construction projects run long.
So this page puts the cost of one month’s delay next to the profit. On the default scenario it is about $2,470: interest on the drawn balance plus the fixed holding costs. Three months of slippage — an inspection backlog, a material lead time, a subcontractor who does not show — is roughly $7,400 off the bottom line. Ten months becomes thirteen more easily than anyone plans for.
The other thing worth getting right is how construction interest actually accrues. A construction loan does not fund as a lump sum. Land is advanced at closing and carries the entire build. The construction portion is released in draws as work is completed and inspected, so on average only about half of it is outstanding across the schedule.
On the default inputs the loan is $362,800 but the average drawn balance is about $219,400. Interest computed on the full commitment would be more than sixty percent higher than the real figure. That error runs the other way from most pro forma mistakes — it makes the project look worse than it is — but it is still wrong, and it will lose you a deal that works.
Third: contingency is not padding. Ten percent of hard costs is a common floor, and the tool flags a budget with none, because a ground-up estimate with no contingency is a forecast that assumes nothing goes wrong on a project type where something reliably does. It is a real line in the budget and it belongs in the financing.
Finally, the margin test. Fifteen percent of the sale price is roughly the point below which ground-up stops compensating for its own risk — cost overruns, schedule slippage, permitting, and a sale price forecast a year or more into the future. But the better test is the one this page makes available: divide the profit by the monthly delay cost. If the answer is two or three months, the margin is not real. It is a rounding error waiting for a reason.
If you are buying the parcel first, the land loan calculator covers the carry before you break ground — and that carry is a project cost too.
Methodology
- Total project cost = land + hard costs × (1 + contingency) + soft costs.
- Loan = financeable cost × loan-to-cost, where financeable cost excludes the land when it is contributed as equity.
- Average drawn balance = the land portion of the loan (outstanding throughout) plus half the construction portion (drawn linearly).
- Construction interest = average balance × monthly rate × months.
- Capitalized cost = project cost + interest + points + holding. Profit = sale price less selling costs less capitalized cost.
- Cost per month of delay = one month of interest on the average balance, plus one month of holding. Break-even sale price = capitalized cost ÷ (1 − selling costs).
A linear draw curve is the standard simplification. Real draws are lumpy — foundation and framing land early, finishes late — which shifts the average somewhat. Excluded: interest reserves capitalized into the loan, draw inspection fees, permanent financing at completion, income tax, and the possibility that the contingency is not enough.
Frequently asked questions
- How does interest work on a construction loan?
- It accrues on what has actually been advanced, not on the commitment. Land is drawn at closing and carries the whole build; construction funds are released in draws as work is completed and inspected. A linear draw curve averages half the construction portion outstanding, which is why the interest here is far lower than the full loan balance would suggest — and why treating it as a fully drawn loan overstates the cost badly.
- What contingency should I carry on a ground-up build?
- Ten percent of hard costs is a common floor and fifteen is safer on anything unusual — a difficult site, an unproven design, a market with volatile material pricing. A budget with no contingency is not a budget, it is a forecast that assumes nothing goes wrong on a project where something always does. The tool flags a zero contingency for that reason.
- What is loan to cost?
- The share of total project cost the lender will advance, typically 70 to 85 percent on ground-up. Whatever is left is your equity, and it usually has to go in first — lenders commonly require the borrower's money to be spent before the first draw funds. That timing matters as much as the percentage.
- What does a construction delay actually cost?
- Interest on the drawn balance plus every fixed holding cost, for each additional month. On the default scenario that is about $2,470 a month, and it comes straight out of profit. Three months of slippage — which is ordinary — is roughly $7,400. It is the most reliably underestimated line in a ground-up pro forma.
- Should the land be inside the loan or contributed as equity?
- Financing the land reduces the cash you need up front but increases the balance carrying interest for the entire build, since it is advanced on day one. Contributing it as equity does the reverse. The tool computes both — toggle the checkbox and watch the equity requirement and the interest move in opposite directions.
- What margin makes a ground-up project worth doing?
- Below about 15 percent of the sale price the project is thin for the risk involved, because construction carries execution risk a purchase does not: cost overruns, schedule slippage, permitting delays, and a sale price forecast a year or more out. The useful test is on this page — how many months of delay would erase the profit entirely? If the answer is two, the margin is too thin.
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