What is Construction Loan?
A construction loan is a short-term loan that finances the building of a home rather than the purchase of a finished one. Money is released in stages, called draws, as work is completed, and the borrower usually pays interest only on the amount drawn so far. When construction finishes, the loan is typically paid off or converted into a standard long-term mortgage.
Example: An owner building a custom home in San Luis Obispo County draws construction-loan funds at each phase - foundation, framing, finish - then converts the balance to a 30-year mortgage once the home is complete.