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Construction Loan
Construction loans, also known as story loans, are short-term loans that provide funding for the land development and construction phases of homes and buildings. A construction loan includes an agreement between the borrower, lender and contractor that governs the disbursement of funds. The approved draw schedule provides funding for each phase of the building project. Lenders typically require various forms of documentation, including construction plans, a summary of all work to be completed, a breakdown of costs to be incurred and a signed construction contract. Construction loans typically require interest only payments while the building is under construction. Interest is charged on all funds disbursed to date, and the loan is due in full upon completion of the building project. Completion means that a certificate of occupancy has been issued. Construction loans are usually paid off with the proceeds of a permanent loan or mortgage.