Jumbo Ground-Up Construction to Permanent Loan: Tear Down, Rebuild, and Build Wealth

  • Tags: Calculators, New Construction, Spec Homes

If you’re considering demolishing an outdated home and replacing it with a custom-built property, a jumbo construction-to-perm loan may be the perfect vehicle to finance your vision. Whether this is your dream primary residence or a strategic investment, understanding the numbers is key. Let’s walk through a sample scenario.

Scenario Overview: Tear Down & Rebuild

You’re planning to tear down an existing home with a $900,000 loan balance and construct a new, custom home with an after-repair value (ARV) of $3,000,000. Here’s how the numbers unfold:

CategoryEstimate
Loan Payoff$900,000
Soft Costs (permits, etc.)$30,000
Hard Costs (build budget)$500,000
10% Contingency Reserve$50,000
Total Project Costs$1,480,000

 

Interest Reserve & Financeable Costs

During the construction period, you won’t make monthly payments—the lender sets aside prepaid interest based on a higher temporary rate.

CategoryEstimate
Interest Reserve (12 mos.)$224,775
Estimated Closing Costs (3%)$44,400
Total Financeable Allowable Costs$1,749,175

This includes everything needed to carry the project to completion.

Loan Limit & Financing Strategy

Lenders typically cap jumbo construction-to-perm loans at 75% of the ARV or total costs—whichever is less.

CategoryEstimate
Max Loan Amount$1,311,881
Cash Out of Pocket$437,294

This is your investment to bring the project to life and bridge the gap between loan limit and actual costs.

Permanent Financing Snapshot (Post-Construction)

Once the construction is complete, your loan automatically converts to a traditional mortgage at a fixed interest rate.

Monthly Payment BreakdownAmount
Principal & Interest$8,719
Insurance$500
Taxes$1,000
Total Monthly Housing Expense$10,219

Income Needed to Qualify

Qualification MetricEstimate
Target Income$23,766/mo

Most jumbo lenders prefer a 43% max debt-to-income (DTI) ratio, but exceptions can be made for strong borrowers with significant reserves.

Why Consider a Jumbo Construction-to-Perm Loan?

  • Single Close Simplicity: Lock in your permanent rate before construction begins—no need to re-qualify.
  • Interest-Only During Construction: Frees up cash while the home is being built.
  • Custom Design Freedom: Build exactly what you want in the exact location you want.
  • Long-Term Wealth Play: The potential profit from building below ARV can be significant—especially in high-demand neighborhoods.

Build Smarter, Live Wealthier

This type of financing isn’t just about building a home—it’s about building equity, lifestyle, and long-term wealth. With your project costs, timeline, and financial position in hand, you’re ready to take the next step.

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Important Disclaimer

This calculator is for illustrative purposes only and does not constitute financial, legal, or investment advice. Results are based on general assumptions and may not reflect actual performance or eligibility. This is not a loan estimate or approval. Please consult with a licensed mortgage advisor before making financial decisions.

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