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

A construction loan and a traditional loan are both types of borrowing designed to help people finance a project. The main difference between a construction loan and a traditional loan is the way in which the loan is used. With a traditional loan, the loan is used to purchase something like a car or house. With a construction loan, the loan is used to finance a project such as building a house or constructing a commercial building. Another difference between the two types of loans is the repayment period. A traditional loan usually has a set repayment period, with fixed monthly or weekly payments. A construction loan, on the other hand, usually has a variable repayment period. The borrower usually only pays interest during the construction period, and the loan must be paid back in a lump sum at the end of the construction period. In Minnesota, construction loans are slightly different than in some other states. State law requires that all construction loans must be secured by a specific property. This means that the loan must be secured by the land or building that the construction loan is intended to finance. In addition, Minnesota law requires that all construction loans also must include an escrow account to cover any potential losses due to the construction process. This account is the lender’s way of protecting their investment.

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

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