| For the most part, an owner or developer of a construction project will finance the construction through a lender rather than paying the costs for planning, designing, and building the structure out of their own pocket. Following is a brief description of various loans that can be associated with a construction project.
Land Loan aka Acquisition Loan - As the name suggests, this loan is used to purchase the property on which the construction will take place.
Development Loan - Funds that are borrowed through a development loan are typically used to prepare the site for construction. For example, these funds could be used to install sewers, roads, and utilities. Additionally, the funds could be utilized to finance the design phase of the project by paying for architects, engineers, attorneys, and land use planning consultants.
Construction Loan - A construction loan is used to pay those costs associated with the actual construction and become due at the close of construction. Oftentimes, outstanding land and development loans will be combined with the construction loan.
Long-Term Loan - Payment of the interim construction loan is usually accomplished through a long-term loan. Typically, the maturity of such loans ranges from 10 to 20 years and the maximum loan amount is calculated as a percentage of the value of the completed construction project.
Medium-Term Loan - This type of loan is usually the extension of three to five years on the construction loan. Primarily used when the construction project involves condominium or apartment housing or a tract of residential homes, medium-term loans give the project time to become an income-generating property so that a long-term loan can then be obtained. Copyright 2010 LexisNexis, a division of Reed Elsevier Inc. |