A construction lender loans money to build construction projects, real estate developments, or improvement projects.
Due to the unique character of the construction process, financing must be structured to accommodate the progress, risks, and short term nature of construction projects. Construction lenders specialize in this type of financing.
Construction lenders make loans to developers, builders, and property owners for the construction phase of the project. When construction is complete, construction loans may be paid off and replaced by other types of financing that corresponds to the character of the completed project.
To mitigate their risks, construction lenders may require a takeout commitment. A takeout commitment is a loan commitment from a bank or other financial institution that will issue a longer term loan that will pay off or complement the construction financing.