A construction loan is a loan used to finance the building of some kind of structure on a piece of land. A construction loan can either be taken out by the purchaser or developer of a piece of land or by the builder who is contracted to build a structure or other improvement on the land. In the residential sector, a construction loan will likely consist of a plot of land which will be improved upon by building a house or other dwelling. Most financial institutions will be more likely to provide financing for your land loan when you do have committed plans to improve upon the land either by building or improving it in some other way. Construction loans may also include building additional structures or making additional improvements to the land even if one or more buildings already exist on it.

In the commercial sector, construction loans may be used when purchasing land to build such things as shopping centers, apartment buildings, office buildings, among other commercial structures. These loans are often very large in size and scope and require a lot of documentation and planning.

Whether your construction loan is personal or commercial, the duration of the loan is usually relatively short-term. They are primarily used to finance a construction on a piece of land and are usually due in full upon completion of the construction. Some construction-to-permanent financing programs allow the borrower to convert the construction loan into a standard mortgage loan once the building is complete.