What type of loan "takes out" the lender of the construction loan?

A takeout loan serves the specific purpose of replacing a construction loan, effectively "taking out" the lender of the initial financing during the construction phase of a real estate project. When a property is built, the construction loan is typically temporary and may not be structured for long-term financing. The takeout loan is thus designed to provide a permanent solution by securing long-term financing, such as a mortgage, for the borrower after construction is complete.

By using a takeout loan, the borrower can pay off the construction loan, allowing the original lender to be reimbursed and alleviate their risk. This transition is essential because construction loans generally have higher interest rates and shorter terms compared to permanent financing options.

Other types of loans mentioned do not perform this specific function of replacing the construction loan with a permanent financing arrangement. An equity loan involves borrowing against the value of a property, rather than addressing the construction financing directly. A first mortgage and a second mortgage are standard loan types for financing real estate, but they do not necessarily imply the bridging from a construction loan to a long-term financing solution like a takeout loan does.