A construction loan typically costs 2% to 5% of the project budget in lender fees, plus variable interest currently running about 7.75% to 9.25% on the money that has actually been disbursed. On top of that sits the down payment, which conventional lenders usually set at 20% to 30% of the project value. So the total construction loan cost for a $400,000 build generally lands somewhere around $8,750 to $20,400 in fees, plus roughly $17,000 in interest over a one-year build, before the down payment is counted.
How those numbers shake out for you depends on the loan structure you pick, your credit, how long the build takes, and whether you qualify for a government-backed program.
The Fees That Make Up the 2% to 5%
Several separate charges stack together to produce that fee range. Each one is tied to a specific piece of the lender’s work or a protection the lender requires.
The origination fee is the biggest single line item. It typically runs 1% to 2% of the total loan commitment, so $4,000 to $8,000 on a $400,000 project. The fee pays for underwriting, which is heavier on a construction loan than a standard mortgage because the lender has to evaluate construction plans, builder qualifications, and projected property values alongside your personal finances.
The appraisal on a construction loan is a “subject-to-completion” appraisal: the appraiser estimates what the finished home will be worth based on plans, specifications, and comparable completed properties. That extra complexity pushes the cost to roughly $600 to $1,200, higher than a standard home appraisal.
Application and credit report fees add another $300 to $700. These are usually non-refundable because they cover work the lender does regardless of whether the loan closes.
Inspection fees accumulate throughout the build. Lenders release loan funds in stages called draws, and before each draw an inspector verifies that the work has actually been done. Each inspection typically runs $150 to $250, and a project may require five to ten inspections, so total inspection costs usually fall between $750 and $2,500.
Title insurance runs 0.5% to 1% of the property value, or roughly $2,000 to $4,000 on a $400,000 project. Construction loan policies often require endorsements covering mechanic’s liens, since unpaid subcontractors can file claims against the property.
Builder’s risk insurance is a requirement specific to construction. A regular homeowner’s policy won’t cover a structure that isn’t finished, so this specialized policy insures against fire, storms, vandalism, and theft of materials on site. Premiums typically run $1,000 to $2,500 depending on size, location, and coverage limits.
Recording fees and transfer taxes vary widely by jurisdiction. Recording fees are often under $100. Transfer taxes, where they apply, can run from almost nothing to several tenths of a percent of the loan amount.
Added together, these items usually produce a fee total of about 2% to 5% of project cost. That is before interest and before any contingency reserve the lender requires.
How Interest Is Charged During Construction
Construction loan interest works differently from a regular mortgage, and the mechanics matter for your total cost.
Rates are variable and tied to the prime rate. As of early 2026, the Wall Street Journal Prime Rate sits at 6.75%. Lenders add a margin on top of that, typically 1% to 2.5%, based on your credit score, down payment, and the project’s risk profile. Current construction loan rates for most borrowers run roughly 7.75% to 9.25%, with strong applicants sometimes negotiating tighter spreads.
You pay interest only on the money the lender has actually released, not on the full approved amount. If your approved loan is $500,000 but only $100,000 has gone out to cover the foundation and framing, interest is calculated on that $100,000. As more draws fund, the balance grows and your monthly interest payment rises with it. This is why interest during the first few months of a build is relatively light and heavier near the end.
For a 12-month build at 8.5% on an average outstanding balance of $200,000, interest carrying costs come to roughly $17,000. That figure moves sharply with the length of the build and with where your rate lands inside the current range.
Down Payment and Equity
The down payment is the largest number in the entire deal. Most conventional lenders require 20% to 30% of total project cost. On a $500,000 build, that is $100,000 to $150,000 in cash or equity before any fees.
If you already own the lot, its equity can count toward the down payment. The lender orders a lot appraisal, and the difference between the appraised value and any outstanding land loan balance is your equity contribution. A lot appraised at $80,000 free and clear on a $400,000 project supplies a 20% stake and can satisfy the entire down payment requirement without additional cash.
Government-backed construction loans sharply reduce the upfront cash required:
- FHA one-time-close loans require as little as 3.5% down with a credit score of 580 or higher, or 10% down with a score as low as 500.
- VA construction loans allow zero down for eligible veterans and active-duty service members, provided the loan amount does not exceed the home’s appraised value. The VA funding fee is 2.15% of the loan amount for first-time use with less than 5% down, or 3.3% for subsequent use; 5% or more down drops the fee to 1.5%, and 10% or more brings it to 1.25%. The funding fee can be rolled into the loan.
- USDA construction loans require no down payment in eligible rural areas, provided the borrower and property meet USDA income and location rules.
Lenders also want to see cash reserves after closing. Construction lenders commonly require two to six months of projected payments in liquid assets, since construction carries more uncertainty than buying a finished home. Bank and brokerage statements go into the file to verify these funds.
One-Close Versus Two-Close: What the Structure Adds
The structure you pick shapes the total bill.
A one-time-close loan combines the construction financing and the permanent mortgage into a single transaction with one application, one appraisal, and one closing. When the home is finished, the loan converts automatically into a standard mortgage without additional fees or paperwork.
A two-time-close loan is a short-term construction loan followed by a separate permanent mortgage you apply for after the build. That means paying closing costs twice: a second appraisal, duplicate title charges, another origination fee. The trade-off is flexibility to shop permanent mortgage rates once construction is done, which can help if rates fall during the build. The risk is that a change in your financial picture during construction could leave you unable to qualify for the permanent loan.
For most borrowers the one-close structure is cheaper because it eliminates the second round of closing costs, which can easily add $5,000 to $15,000. The one-close option sometimes carries a slightly higher construction-phase rate to compensate the lender for locking in permanent terms months in advance.
Rate Locks, Float-Downs, and the Cost of Delay
Because builds take six to eighteen months, interest rates can move before your loan converts to permanent financing. Some lenders offer extended rate locks of 120, 180, 270, or 360 days that let you secure a permanent rate at the start of construction. Each lock carries a fee that varies by lender.
Some lenders also offer a one-time float-down option, usually available within 60 days of your expected closing date, that lets you lower a locked rate if market rates have dropped. The lock fee is sometimes partially credited toward closing costs if the loan closes as scheduled.
If construction runs past your lock expiration, extending the lock costs an additional 0.25% to 1% of the loan amount, depending on lender and extension length.
Delays can also require extending the construction loan itself. Extension fees typically run 0.25% to 1% of the loan balance, so $1,000 to $4,000 on a $400,000 loan, and you keep paying interest during the added time. Some lenders offer fixed extension increments of 30, 60, or 90 days; others work case by case. When a lender gives you a choice between a 12-month and an 18-month construction term up front, the longer term costs more in total interest but is usually cheaper than a formal extension later.
Contingency Reserves
Many lenders require a contingency reserve to cover unexpected costs during construction, such as lumber price spikes, unforeseen site conditions, or changes required by local inspectors. When required, the reserve is typically set at 5% to 10% of the total construction budget and held in escrow by the lender.
Not every lender mandates it. USDA construction-to-permanent loans, for example, allow a reserve of up to 10% but do not require one if the borrower and lender agree it is unnecessary. If the reserve goes untouched, the funds are usually applied to loan principal or returned to you.
How Credit Score Changes What You Pay
Credit affects both whether you qualify and how much the loan costs. Conventional construction loans typically require a minimum score of 680, with better rates for borrowers above 720. FHA construction loans accept scores as low as 580 at 3.5% down, or 500 at 10% down.
Beyond qualifying, your score sets the margin a lender adds above prime. A borrower at 760 might see a 1% margin, putting the rate near 7.75% at current prime levels. A borrower at 680 could face 2% or more. Over a twelve-month build, that spread adds up to thousands in extra interest.
Putting the Total Together for a $400,000 Project
For a conventional loan on a $400,000 build, fees beyond the down payment and interest typically fall in these ranges:
- Origination fee (1%–2%): $4,000–$8,000
- Appraisal: $600–$1,200
- Application and credit fees: $300–$700
- Inspection fees (5–10 draws): $750–$2,500
- Title insurance (0.5%–1%): $2,000–$4,000
- Builder’s risk insurance: $1,000–$2,500
- Recording fees and transfer taxes: $100–$1,500
Total fees land in the range of roughly $8,750 to $20,400, or about 2% to 5% of project cost. Add roughly $17,000 of interest on a 12-month build at 8.5% with an average outstanding balance of $200,000. A two-close structure adds a second round of most of those fees. VA and FHA borrowers trade some of these charges for program-specific costs, like the VA funding fee, which can be rolled into the loan but increases the balance you pay interest on across the life of the mortgage.