Loan Officer Practice Exam

What type of loan is often used to finance the temporary creation of a building or structure?

1. A) Permanent loan

2. B) Revolving loan

3. C) Construction loan

4. D) Equity loan

The correct answer is: C) Construction loan

A construction loan is specifically designed to finance the temporary creation of a building or structure. This type of loan provides the necessary funds for the construction phase, which includes materials, labor, and other costs associated with building a new structure or renovating an existing one. Construction loans are typically short-term, enabling borrowers to access funds throughout the construction process as needed. This aspect distinguishes construction loans from permanent loans, which are long-term financing options meant for existing properties, and equity loans, which rely on the value of an already owned property. Revolving loans, while flexible, are more associated with ongoing financing needs rather than specific projects like construction. Therefore, a construction loan is the most appropriate option for financing new building projects temporarily.