Definition
Short-term financing for building or renovating property, typically disbursed in stages as construction progresses rather than all at once. It's banking's trust exercise, betting you can actually finish the project before the money runs out.
Example Usage
The construction loan provided draws at foundation, framing, and completion stages, with the builder required to match 20% from their own funds.
Origin
Specialized lending terminology from early 20th century development financing
Fun Fact
Construction loans often convert to permanent mortgages in a 'construction-to-permanent' or 'one-time close' loan, saving borrowers from applying twice.
Source: Commercial and residential construction lending standards
Related Terms
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