What type of mortgage is used primarily for securing a property’s construction funding?

A construction loan is specifically designed to finance the construction of a property. Unlike traditional mortgages that typically cover the purchase price of an already built property, construction loans provide the funds needed for the construction process, which includes the costs of materials, labor, and other expenses related to building a new home or property.

Typically, the lender disburses the funds in stages as construction progresses, rather than providing the entire amount upfront. This helps to manage risk, as payments are made incrementally based on completed work. Additionally, these loans often have higher interest rates reflecting the increased risk associated with construction financing.

In contrast, a building loan often refers to a short-term loan for construction but is less commonly used than the term "construction loan." A purchase money mortgage is meant for the acquisition of an existing property rather than financing construction. A second mortgage represents additional borrowing against a property that has already been financed; it does not serve the purpose of funding construction. Therefore, a construction loan is the most appropriate choice for securing funding specifically for property construction.