construction loan is used to finance the building of commercial or residential real estate. The loan applicant may be a real estate developer or an individual building a custom house. The loan is often short-term and is then replaced by longer-term mortgage financing.
Construction loans are usually for only one year. After construction is complete, you can either refinance the construction loan into a permanent home mortgage or get a new loan to pay off the construction loan (sometimes called an “end loan”).
The borrower might be required to make interest-only payments on a construction loan while the project is underway. Some construction loans may require the balance be paid off entirely by the time the project is complete.
If a construction loan is taken out by someone who wants to build a home, the mortgage lender might pay the funds directly to the contractor rather than to the borrower. The payments may be made in installments as the project completes new stages of development
Some strategies or securing construction financing include: