# Construction Loan

*Real Estate — Finicade finance glossary*

A construction loan funds building work in staged draws released as milestones are inspected, with interest paid only on what's drawn. It converts to a permanent mortgage on completion, or is refinanced. The lender is underwriting a plan rather than an asset, so it demands contingency reserves, fixed-price contracts and personal guarantees — and cost overruns are the borrower's problem, not the loan's.

**Also known as:** development finance, build loan, draw schedule

**Related terms:** [Hard Money Loan](https://finicade.com/glossary/hard-money-loan), [Bridge Loan](https://finicade.com/glossary/bridge-loan), [Zoning](https://finicade.com/glossary/zoning), [Pro Forma](https://finicade.com/glossary/pro-forma), [Commercial Real Estate](https://finicade.com/glossary/commercial-real-estate)

Source: https://finicade.com/glossary/construction-loan