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.
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.
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.
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.
These are some of the most common types of construction loans:
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.
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.
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.
Takeout Loan
A takeout loan provides permanent financing on projects where a temporary loan, such as a short-term
construction loan, currently exists.
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.