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

A construction loan and a traditional loan, though both types of loans, have significant differences. A construction loan is a short-term loan taken out to finance the construction of a building or home. This loan is often taken out to pay for the cost of the project and materials and pays for labor and other related expenses. In South Dakota, typically, the loan is issued in draws, which means that payments are given when certain portions of the project are completed. The loan is usually taken out in the name of the borrower and the lender of the loan holds the collateral, which is the real estate itself. On the other hand, a traditional loan is used for the purchase of real estate or to pay for other long-term expenses. It is used for a variety of needs, such as making improvements to an existing home or business, making a large purchase, or consolidating debt. This loan usually requires the borrower to put up collateral for the loan and the repayment schedule is typically longer-term. In summary, a construction loan is for the purpose of building or improving a property, while a traditional loan is for the purpose of purchasing real estate or making long-term purchases. Construction loans are short-term and disbursed in draws, while traditional loans are long-term and typically require collateral. In South Dakota and many other states, the laws governing the two types of loans differ, so it is important to be aware of all the rules.

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

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