What kind of loan is structured to facilitate construction projects?

A construction loan is specifically designed to fund the costs associated with building or renovating real estate. Unlike traditional loans, which typically provide a lump sum of money for long-term purposes, construction loans disburse funds progressively as the construction process moves forward. This allows borrowers to manage short-term expenses and pay only for the money they have drawn at any given point.

These loans often cover costs such as labor, materials, and associated fees, tailored to the unique financial needs of a construction project. Once the construction is completed, these loans can often transition into permanent financing, converting to a mortgage with a longer repayment period.

Other loan types mentioned do not serve the same purpose as a construction loan. An amortized loan typically involves fixed payments throughout the life of the loan, which is not conducive to the dynamic financial needs of a construction project. A straight loan, generally, does not entail any principal payments until the end of the term, making it unsuitable for progressive payments required during construction. A bridge loan is intended as a short-term solution, facilitating immediate cash flow needs when there is a gap between funding sources but is not specifically tailored to construction projects.