Which loan is typically used as interim financing during construction or repairs of property?

• A. Construction loan
• B. Open end loan
• C. Sale & leaseback
• D. Buy downs

Answer: (A)

Constructing or repairing property requires funds as work progresses, so a loan designed for that purpose—disbursed in stages as construction advances—is used. A construction loan is short-term financing that provides funds in draws aligned with the construction schedule. The lender typically requires a detailed draw plan, plans, bids, and inspections, and you usually pay interest only on the amount drawn. When the project finishes, the loan is paid off or refinanced into a permanent mortgage, which is why this type of loan is considered interim financing.

Other options don’t match this need: an open-end loan is a revolving line of credit not specific to staged construction, a sale-and-leaseback involves selling the property and leasing it back rather than financing the construction itself, and a buy-down is a method to reduce the mortgage interest rate rather than provide construction funds.