Where does money go when you buy anything? To the seller. They can use that money to pay whoever they need to (like the wages of construction workers) just like any business.

It's just a matter of spending the money before you have it. If someone wants to sell a home, they can take out a loan, buy land, materials, pay workers to build one and it's a gamble that they can sell the home for more than the value of the loan plus interest.

The buyer takes out their own loan (mortgage) to buy the home, the seller gets that money and uses it to pay off their own mortgage.

Businesses often operate in a state of constant debt (not with a deficit) constantly taking out loans to spend money to earn money that they use to pay off the loans. They end up with more money than they started with, and they can use that new money to justify larger loans or to start new projects, and they just grow from there.

Buying a home with a mortgage is really no different from buying groceries with a credit card. You use the credit card, the bank pays the business on the condition that you pay the bank back later. Using credit rather than cash or debit means there's more money free to circulate around the economy as long as you're responsible and don't spend more than you earn.