Which loan specifically covers the costs of materials and labor for construction?

The correct choice is the Construction Loan, which is designed specifically to cover the costs associated with building a new home or other structures. This type of financing provides funds for various expenses that arise during the construction phase, including labor, materials, and equipment. Unlike traditional mortgages, which are typically used for purchasing existing properties, construction loans are tailored to meet the unique needs of construction projects and are usually disbursed in stages as the work is completed.

In contrast, a Blanket Mortgage is a financing tool that covers multiple properties under a single loan, often used by real estate developers. A Package Mortgage typically involves financing the property as well as personal property that will remain with the home, such as appliances or furniture, but does not exclusively cover costs directly related to construction. An Open-End Mortgage allows for future borrowing against the property, but it does not specifically pertain to funding construction costs.

Thus, construction loans play a crucial role in the building process, making them the appropriate choice for financing new construction projects.