Casa Academy

Reviewed by Casa Academy and updated July 29, 2026 using the current DBPR checklist and Pearson VUE scheduling guidance.

Construction Loan

A construction loan is short-term financing that funds building or major renovation, usually disbursed in draws as work milestones complete, then often converted or paid off with permanent takeout financing when the project is finished.

Exam context

Identify construction loans as temporary, draw-based financing. Distinguish from bridge loans on existing property and from HELOC renovation draws secured by an occupied home.

Interim financing mechanics

Lenders inspect completed stages before releasing each draw to the builder. Borrowers typically pay interest only on amounts disbursed. If the owner acts as builder, stricter oversight and higher reserves may apply. The loan matures at completion or converts per the note terms.

Completion and takeout

A permanent mortgage or sale proceeds retire the construction loan. Construction-to-permanent loans roll into one closing with a single set of closing costs in some programs. Exams ask who bears cost overruns and whether liens from subcontractors can cloud title before final disbursement.

Examples

  • Custom home build

    An owner obtains a 12-month construction loan at 8% interest-only. The lender funds 30% after foundation inspection, then additional draws after framing and drywall passes.

  • Spec home developer

    A builder finances five speculative homes under separate construction notes, each to be paid from sale closings within 18 months.

Keep studying

Practice construction loan questionsEnroll in pre-licensing

Related terms

  • Bridge loanShort-term gap financing between buying and selling.
  • Blanket mortgageOne loan covering multiple parcels with release clauses.

Related resources

Sources