What is a construction loan designed for?

A construction loan is specifically designed to provide interim financing for the development of land and the construction of new buildings. These loans are typically short-term and are used to cover the costs associated with the construction phase of a project. Once the construction is completed, the loan can often be converted into a permanent mortgage, allowing the borrower to secure long-term financing for the property.

In the context of the other options, purchasing already built homes does not apply since construction loans are meant for new builds rather than existing properties. Similarly, buying equipment for businesses falls outside the scope of construction loans, as they focus on real estate projects rather than business assets. Lastly, refinancing existing debts pertains to restructuring existing loans rather than financing a new construction project, which is what construction loans are intended for.