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Construction loans are specialized types of real estate financing specifically designed for constructing new buildings or renovating existing ones. These loans cater to developers, builders, and investors involved in construction projects, providing them with the necessary funds to cover various costs such as land acquisition, materials, labor, permits, and other expenses directly related to the construction process. The terms of a construction loan often include progressive draw disbursements tied to specific project milestones or phases, ensuring that funds are released incrementally and only when appropriate. Once construction is completed, the borrower typically refinances or repays the construction loan with a permanent mortgage or long-term financing option.