Finance
In Louisiana, a 'construction loan' is typically structured as:
AA permanent 30-year mortgage from the start of construction
BA short-term loan that funds construction draws, converting to a permanent mortgage upon completion✓ Correct
CA government grant for new construction
DA line of credit secured only by the builder's personal property
Explanation
Construction loans are short-term financing that funds the building process through periodic draws as construction progresses. Upon completion, the loan is typically converted to (or replaced by) a permanent long-term mortgage.
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Key Terms to Know
Amortization
The gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
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