How Much Should My Construction Loan Cost?
October 4, 2023
It’s a common question. “How much is my mortgage payment on a One-Time Close home loan?” The answer isn’t as simple as providing a dollar amount, as we will explore below.
A more important question for many construction loan applicants? “How much of my monthly income will my mortgage require?”
How Much A Construction Loan Costs
We have written about home loan fallacies before, and one of the biggest is the notion that you can arrive at a realistic monthly mortgage estimate by taking the home's sale price and dividing it by the mortgage's term. Here’s why that does not work.
Your mortgage is made up of a variety of factors, including:
How Much A Construction Loan Should Cost Each Month?
There are multiple schools of thought on this subject. They include the following.
The 28% Rule For Gross Income
One common school of thought holds that borrowers should not use more than 28% of their gross income (pre-tax) for a mortgage per month.
According to an article by Time Magazine, “This should account for every element of your home loan (e.g., principal, interest, taxes, and insurance). If you and your spouse earn $10,000 per month gross, for example, your full housing payment should be no more than $2,800.”
The 28% / 36% Rule
This notion is similar to the 28% rule mentioned above but adds an extra rule. In addition to the 28% rule, no more than 36% of the borrower’s pre-tax gross income should used to meet all your monthly debts.
The 35% / 45% Rule
Time Magazine’s article on mortgage debt includes a word on this rule, noting, “Your housing payment shouldn't be more than 35% of your gross income or more than 45% of your net income after you pay taxes.”
Other rules divide these percentages up, but you get the idea. The basic reasoning behind all of these calculations is simply to help the borrower avoid over-committing to a mortgage loan they can’t realistically afford.
Are you unsure about the overall costs of a construction loan and how those costs will affect your ability to pay for the loan down the road?
Talk to a One-Time Close lender today to learn what options that make for an affordable monthly mortgage are open to you.
Want More Information About One-Time Close Loans?
We have extensively researched the FHA (Federal Housing Administration) and the VA (Department of Veterans Affairs) One-Time Close Construction loan programs.
We have spoken directly to licensed lenders that originate these residential loan types in most states, and each company has supplied us with the guidelines for their products.
We can connect you with mortgage loan officers who work for lenders who know the product well and have consistently provided quality service.
If you are interested in being contacted by a licensed lender in your area, please send responses to the questions below. All information is treated confidentially.
OneTimeClose.com provides information and connects consumers to qualified One-Time Close lenders to raise awareness about this loan product and to help consumers receive higher-quality service.
We are not paid for endorsing or recommending the lenders or loan originators and do not otherwise benefit from doing so. Consumers should shop for mortgage services and compare their options before agreeing to proceed.
Please note that investor guidelines for the FHA and VA One-Time Close Construction Program only allow for single-family dwellings (1 unit) – and NOT for multi-family units (no duplexes, triplexes or fourplexes).
In addition, the following homes/building styles are not allowed under these programs: Kit Homes, Barndominiums, Log Cabin Homes, Shipping Container Homes, Stilt Homes, Solar (only) or Wind Powered (only) Homes.
Contact Us: Send Us Your Request – Spam Safe
Please send your email request to [email protected], which authorizes OneTimeClose.com to share your personal information with one mortgage lender licensed in your area to contact you.
1. Send your first and last name, e-mail address, and contact telephone number.
2. Tell us the city and state of the proposed property.
3. Tell us your and/or the Co-borrower’s credit profile: Excellent – (680+), Good - (640-679), Fair – (620-639), or Poor- (Below 620). 620 is the minimum qualifying credit score for this product.
4. Are you or your spouse (Co-borrower) eligible veterans?
If either of you is an eligible veteran, down payments as low as $0 may be available up to the maximum amount your debt-to-income ratio per VA will allow – there are no maximum loan amounts as per VA guidelines.
Most VA lenders will go up to $1,500,000 and review higher loan amounts on a case-by-case basis. If not, the FHA down payment is 3.5% up to the maximum FHA lending limit for your county.
A more important question for many construction loan applicants? “How much of my monthly income will my mortgage require?”
How Much A Construction Loan Costs
We have written about home loan fallacies before, and one of the biggest is the notion that you can arrive at a realistic monthly mortgage estimate by taking the home's sale price and dividing it by the mortgage's term. Here’s why that does not work.
Your mortgage is made up of a variety of factors, including:
- Principal balance
- Mortgage interest
- Homeowners insurance
- Property taxes
- Mortgage insurance
How Much A Construction Loan Should Cost Each Month?
There are multiple schools of thought on this subject. They include the following.
The 28% Rule For Gross Income
One common school of thought holds that borrowers should not use more than 28% of their gross income (pre-tax) for a mortgage per month.
According to an article by Time Magazine, “This should account for every element of your home loan (e.g., principal, interest, taxes, and insurance). If you and your spouse earn $10,000 per month gross, for example, your full housing payment should be no more than $2,800.”
The 28% / 36% Rule
This notion is similar to the 28% rule mentioned above but adds an extra rule. In addition to the 28% rule, no more than 36% of the borrower’s pre-tax gross income should used to meet all your monthly debts.
The 35% / 45% Rule
Time Magazine’s article on mortgage debt includes a word on this rule, noting, “Your housing payment shouldn't be more than 35% of your gross income or more than 45% of your net income after you pay taxes.”
Other rules divide these percentages up, but you get the idea. The basic reasoning behind all of these calculations is simply to help the borrower avoid over-committing to a mortgage loan they can’t realistically afford.
Are you unsure about the overall costs of a construction loan and how those costs will affect your ability to pay for the loan down the road?
Talk to a One-Time Close lender today to learn what options that make for an affordable monthly mortgage are open to you.
Want More Information About One-Time Close Loans?
We have extensively researched the FHA (Federal Housing Administration) and the VA (Department of Veterans Affairs) One-Time Close Construction loan programs.
We have spoken directly to licensed lenders that originate these residential loan types in most states, and each company has supplied us with the guidelines for their products.
We can connect you with mortgage loan officers who work for lenders who know the product well and have consistently provided quality service.
If you are interested in being contacted by a licensed lender in your area, please send responses to the questions below. All information is treated confidentially.
OneTimeClose.com provides information and connects consumers to qualified One-Time Close lenders to raise awareness about this loan product and to help consumers receive higher-quality service.
We are not paid for endorsing or recommending the lenders or loan originators and do not otherwise benefit from doing so. Consumers should shop for mortgage services and compare their options before agreeing to proceed.
Please note that investor guidelines for the FHA and VA One-Time Close Construction Program only allow for single-family dwellings (1 unit) – and NOT for multi-family units (no duplexes, triplexes or fourplexes).
In addition, the following homes/building styles are not allowed under these programs: Kit Homes, Barndominiums, Log Cabin Homes, Shipping Container Homes, Stilt Homes, Solar (only) or Wind Powered (only) Homes.
Contact Us: Send Us Your Request – Spam Safe
Please send your email request to [email protected], which authorizes OneTimeClose.com to share your personal information with one mortgage lender licensed in your area to contact you.
1. Send your first and last name, e-mail address, and contact telephone number.
2. Tell us the city and state of the proposed property.
3. Tell us your and/or the Co-borrower’s credit profile: Excellent – (680+), Good - (640-679), Fair – (620-639), or Poor- (Below 620). 620 is the minimum qualifying credit score for this product.
4. Are you or your spouse (Co-borrower) eligible veterans?
If either of you is an eligible veteran, down payments as low as $0 may be available up to the maximum amount your debt-to-income ratio per VA will allow – there are no maximum loan amounts as per VA guidelines.
Most VA lenders will go up to $1,500,000 and review higher loan amounts on a case-by-case basis. If not, the FHA down payment is 3.5% up to the maximum FHA lending limit for your county.
See Your Credit Scores From All 3 Bureaus
Do you know what's on your credit report?
Learn what your score means.
Articles, Updates, and Guidelines
FHA Single Close Construction Loans
July 26, 2024The Federal Housing Administration (FHA) offers qualifying borrowers the option to build a home from the ground up using a Single Close FHA Construction Loan. This program, also known as a One-Time Close construction mortgage, allows borrowers to finance the construction of a new home and convert it into a permanent mortgage with just one closing, streamlining the often complex process of building a house.
The VA Construction Loan Timeline
July 19, 2024VA One-Time Close construction loans help qualifying veterans build homes they will own and occupy once the construction phase is complete. One-time close loans, or construction-to-permanent loans, combine construction and permanent financing into a single closing procedure. VA One-Time Close mortgages have no VA-required down payment or mortgage insurance, making them attractive options for qualifying borrowers.
Construction Loan Choices
July 12, 2024When planning a construction loan, you have many options. For example, do you want to buy land with a loan to build the house? Or do you already own a parcel suitable for the construction project? There are many other choices to make with home loans, but some don’t necessarily apply to construction mortgages.
