A situation in which the builder finances the construction. When the house is completed the buyer then obtains a permanent mortgage.

With this type of financing, the buyer does not have to worry about the builder's financial capacity, which is one less thing to be concerned about.

Bankapedia's Take:

You'll be hard pressed to find a builder willing to finance their own materials and labor, they are still out there. With this type of financing it eliminates the need for a bank to hold escrow funds and gradually dole it out to the builder. Builder financing is often the result of the builder not wanting to deal with the bank and a way for them to make some extra cash. However in a depressed market, the risk is rarely worth it for the builder.