Construction Loans

A construction loan is a short-term loan provided to finance the construction of a new property or major renovations to an existing property. The loan is typically taken out by a builder or homeowner who needs funds to pay for materials and labor during the construction process. Construction loans work differently from traditional mortgage loans because the funds are dispersed over time, based on specific stages of the construction process. The borrower typically pays interest on the outstanding balance during the construction period, after which the loan is converted into a traditional mortgage loan or must be paid in full. Construction loans often require a larger down payment than traditional mortgage loans and may also involve more stringent qualification requirements. These loans are generally riskier for lenders than traditional mortgages because construction projects may face delays, cost overruns, and other unforeseen issues that could impact repayment..