Construction Loan Lending Practice

Under a construction loan, also called an interim loan, money is advanced as new home construction takes place. For example, a vacant lot owner arranges to borrow $60,000 to build a house. The lender does not advance all $60,000 at once because the value of the collateral is insufficient to warrant that amount until the house is finished. Instead, the lender will parcel out the loan as the building is being constructed, always holding a portion until the property is ready for occupancy, or in some cases actually occupied. Some lenders specialize only in construction loans and do not want to wait 20 or 30 years to be repaid. If so, it will be necessary to obtain a permanent long-term mortgage from another source for the purpose of repaying the construction loan. This is known as a permanent commitment or a take-out loan, since it takes the construction lender out of the financial picture when construction is completed and allows him to recycle his money into new construction projects. 

Interim Loan To Purchase Money Mortgage