What is a temporary loan specifically used to finance the construction of buildings?

A temporary loan specifically used to finance the construction of buildings is referred to as a construction loan. This type of financing is tailored to meet the needs of borrowers who are looking to fund the cost of building a new structure or undertaking significant renovations. Unlike traditional mortgages that are typically long-term and amortized over many years, construction loans are short-term and usually cover only the period needed to complete the construction.

Construction loans often have different disbursement structures, with funds released in phases, known as "draws," based on the completion of specific milestones in the building process. This allows borrowers to pay contractors and suppliers as the work progresses. At the end of the construction period, borrowers often transition to a standard mortgage for their permanent financing, which may be arranged in advance through a construction-to-permanent loan.

In contrast, hard money loans are typically short-term loans secured by real estate but are mainly used for investment properties and carry much higher interest rates. A construction-to-permanent loan combines the two financing steps into a single loan product but does not specifically refer to temporary financing solely for the construction phase. Lastly, a swing loan is a type of temporary financing designed to "bridge" a gap or provide liquidity until a more permanent solution is obtained, often