There are two main types of home Construction loans. They are a Construction-to-permanent and Stand-alone construction loan. For a Construction-to-Permanent loan, you borrow to pay for the construction of your home. When you move in, the lender converts the loan balance into a permanent mortgage. Its essentially two loans in one.
With a stand-alone construction, your first loan pays for construction. When you move in, you get a mortgage to pay off the construction debt. It’s two separate loans. Lenders will conduct routine inspections as the home is built. During this period, the lender pays the builder in stages, called “draws,” and usually sends an appraiser or inspector to make sure that construction proceeds as planned.