A construction loan is a specific kind of house loan intended for borrowers who are building a new home or making significant improvements to an existing one. This mortgage is not like other conventional mortgages that are intended for those purchasing already-owned real estate.

The most typical drawdown for a construction loan is progressive. In other words, rather of getting the entire loan amount at once at the beginning, you receive it in installments at different points during the construction process. Usually, interest is only charged on the amount that is actually withdrawn from the loan—not the entire amount. To help with cash flow, this financing also permits interest only while building is underway.