Florida Real Estate Broker ExaminationReal Estate Finance and InvestmentMedium
A developer is seeking financing for a large mixed-use project. The project involves multiple phases and a significant amount of capital. Which type of financing is specifically designed to cover the costs of constructing improvements on land?
- APackage mortgage
- BConstruction loan
- CPurchase money mortgage
- DBlanket mortgage
Show answer & explanationAnswer & explanation
Correct answer: B. Construction loan
A construction loan is a short-term loan used to finance the construction of a new building or property. Funds are typically disbursed in stages as construction progresses.
Why the other options are wrong
- A. A package mortgage includes both real and personal property (e.g., a furnished condo).
- C. A purchase money mortgage is used by a buyer to finance the purchase of real estate, often provided by the seller.
- D. A blanket mortgage covers multiple parcels of real estate under one loan.
Construction Loan
A short-term loan used to finance the construction of real estate, with funds disbursed in draws as work is completed.
- Short-term, typically 12-18 months.
- Funds are released in stages (draws) based on inspection progress.
- Often converts to a permanent mortgage upon completion.
Memory trick: Loan types match needs: Build, Buy, or Bundle.