Development loans are a special type of loan offered by private lenders and banks. Unlike regular mortgage loans, they have shorter repayment terms. Often, the interest is added to the loan balance instead of being paid regularly like with home or investment property loans.

So, what are these loans for? They are used for specific projects where you buy land and then pay for construction. You present your project to the lender, including all costs like buying the land, building, and legal fees. The lender will look at the total value and decide if it’s a good project to fund. They want to make sure you’ll get at least a minimum acceptable return after completing the project.

These loans are assessed very differently from mortgage loans.