construction loan

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Construction loan

A short-term loan to finance building costs.

Construction Loan

A short-term loan used to finance the building of some real estate project. The builders take out a construction loan in order to begin the project while they obtain long-term funding. Because there is no guarantee that the builders will be able to obtain long-term funding and a construction loan is not intended to fund an entire project, construction loans are fairly risky, and, as a result, have high interest rates.

construction loan

A short-term mortgage taken to finance the construction of a real estate project before permanent long-term financing is obtained. Because of its relatively high return, some real estate investment trusts specialize in this type of loan. Construction loans are often more risky than long-term mortgages.

construction loan

A loan originated for the purposes of providing payment for construction work or subdivision development.See also building loan agreement.
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