TRUSTCO
Serving Central Indiana - North Texas Market
Construction
Loans
A construction loan is a type of bank-issued short-term financing, created for the specific purpose of financing a new home or other real estate project. The loan can be applied for by anyone who is investing their time and money in construction or related expenses. An individual homeowner, a contractor, or a small business owner can use construction loans to finance their construction project.
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Construction Loans
Construction Loans are taken out to cover the material and labor costs of building structures like offices,
retail fronts, industrial facilities, multi-family rental units, and more.
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Developers and investors who purchase underutilized land or run-down properties have special needs due
to the financing that is required to get their properties up to speed. Not only must these clients worry about
selling, occupying or owning a project, but they must obtain specific financing to make the land,
and any buildings on it habitable.
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Commercial development can be perilous, and getting funding can be tricky if the developer and others involved
do not have a track record of successful projects. Sometimes the developers are the owners upon completion
and can use other properties they have developed as collateral.
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These are some of the most common types of construction loans:
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Land Development Loan
A land development loan when you have raw or undeveloped land needs to be made construction-ready.
The raw land may be subdivided and sold as a number of parcels for commercial or residential use.
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Acquisition and Development Loan
An A&D loan is appropriate if the raw land is ready to be developed, or is already developed but needs
improvements to its infrastructure or existing buildings. The A&D loan usually covers both the purchase
of this land and the cost of any improvements needed before the development can be completed.
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Mini Perm Loan
This is a temporary loan used to settle an outstanding construction or commercial property loan that,
once completed, would produce income. The mini-perm loan is later replaced with long-term financing.
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Takeout Loan
A takeout loan provides permanent financing on projects where a temporary loan, such as a short-term
construction loan, currently exists.
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Interim Construction Loan
This pays for the labor and materials used to construct a project. An interim construction loan is usually
valid for 18 to 36 months and is settled once a long-term mortgage is in place.