(1.) Financing used when a borrower contracts to have a house built on raw land, as opposed to purchasing a previously built house.

(2.) Some people chose to get separate construction loans and permanent mortgages, while some people chose to combine these separate loans into one mortgage. The main con of getting separate loans is the buyer has to shop for two loans, with two different rates, and two different sets of closing costs. The main con of combining these two loans is that the buyer will end up overpaying for the permanent mortgage.

(3.) Interest on construction loans is deductible as soon as construction begins, for a period up to 24 months, provided that at the end of the period you occupy the house as your residence.

References

Jack, Guttentag. "Mortgage Glossary". 2008 <http://www.mtgprofessor.com/glossary.htm>.