Construction Loans - Financing
A construction loan is a short-term loan used to provide funds to the borrower for the construction of a home or other building. These loans are usually made for a term of one to two years. The loan is repaid after construction is completed by a permanent or long-term loan which is usually fully amortized. Funds are usually disbursed directly to the contractor or contractors doing the construction work based upon a percentage of completion formula. Interest is calculated based upon the monthly principle outstanding balance. Construction loans normally payoff any prior land loan secured by the property. Most construction loans are made by local community banks or credit unions.