A short-term loan secured by the property that is under construction typically for a term of 1-year or less, which will allow the homeowner and or builder to draw funds as the construction progresses.

Interest during the life of the construction is paid as the money is used most lenders normally charge 1-2% above the prime rate during the term of the loan.

Most lenders require what is known as permanent or takeout mortgage prior to approving the construction loan.