Construction Mortgage

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DEFINITION of 'Construction Mortgage'

A loan borrowed to finance the construction of a home and typically only interest is paid during the construction period. Once the construction is over, the loan amount becomes due and it becomes a normal mortgage. The money is advanced incrementally during construction, as construction progresses.

BREAKING DOWN 'Construction Mortgage'

Financing to build a new home typically comes in the form of a construction-to-permanent loan. This financing option has two parts: a loan to cover the costs of construction, and a mortgage on the finished home. The advantage of such plans is that you have to apply only once and you will have only one loan closing.

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    The most common types of closed-end credit used by both businesses and individuals are mortgages and auto loans. Businesses ... Read Full Answer >>
  3. What are the long-term effects of delinquent accounts?

    Delinquency occurs when borrowers fail to make payments on their loans. All loan borrowers should do their best to avoid ... Read Full Answer >>
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    The American Dream was seriously damaged by the housing market collapse in 2008. In many ways, the American Dream is a self-fulfilling ... Read Full Answer >>
  5. How much risk is associated with subprime mortgages?

    A large amount of risk is associated with subprime mortgages. Since the mortgages are specifically for people who do not ... Read Full Answer >>
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