What is the difference between a construction loan and a traditional loan?

Construction loans and traditional loans differ in that construction loans are specialized loans designed for financing the cost of building a home or other structure, while traditional loans are loans used for a variety of purposes, including home purchases. Construction loans are short-term loans that are typically used to finance the cost of building a home or other structure, such as a garage or shed. Traditional loans, on the other hand, can be used for a variety of purposes, such as purchasing a home or refinancing an existing loan. Construction loans are typically structured in two phases. The first phase is the short-term loan, which provides the borrower with the funds they need to build their home or other structure. During this phase, the borrower must make payments on the loan and interest is charged. The second phase is the long-term loan, which pays off the loan with interest once the construction project is complete. Traditional loans are usually for a specific purpose, such as purchasing a home or refinancing an existing loan. The terms of these loans are usually longer, with fixed interest rates and payments. Traditional loans also typically require a down payment. In California, both construction and traditional loans are subject to the same state laws, including regulations regarding interest rates, loan origination fees and repayment terms. It is important for borrowers to understand the differences between construction and traditional loans before entering into an agreement.

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What is the difference between a construction loan and a traditional loan?

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