What is a construction loan primarily used for?

A construction loan is primarily designed to provide funding specifically for the costs associated with building a new home or other types of property. These loans cover expenses such as materials, labor, and permits during the construction process. Unlike other types of loans, such as those intended for purchasing existing homes or refinancing, construction loans are temporary and generally have higher interest rates because they are considered riskier for lenders. The funds are often disbursed in stages as construction progresses and typically require a plan or timeline for completion. This makes them uniquely suited for borrowers looking to finance the development of a property from the ground up.