A construction loan is a short-term financing option used to fund the building of a new home or other real estate projects. Unlike traditional mortgages, these loans are typically disbursed in stages, known as "draws," as construction progresses. Borrowers usually pay interest only during the construction period, which can last from a few months to a couple of years. Once the construction is complete, the loan can be converted into a permanent mortgage, or the borrower may need to pay it off entirely. Lenders assess the project's plans, budget, and timeline before approving a construction loan, ensuring that the project is financially viable.