When a home buyer decides to build a new home rather than purchase an existing home, there can be a steep learning curve when it comes to the different financing requirements for construction. Unlike a simple home process for a home which is completed, a traditional mortgage is not going to be a very likely option. Traditional lenders are not fond of the increased risk involved in the construction process so they impose many rules and guidelines in an effort to remove some of the risks.
One of the first requirements that lenders will impose on Construction Loans in Arizona is that the builder be a licensed general contractor with an established business and history of success. This means that owners cannot be the general contractor of their own home build, nor could they use the services of a smaller business or even a family member or friend who is not an established general contractor. This can make the process much more expensive. In addition, the lender can demand the right to approve the final floorplan, specification and design of the home. This is just another way to protect their investment and to be certain that the home will have the expected value when completed.
Once all of the negotiations of the design and the builder is settled, the lender can also request one last appraisal be done on the plans for the home before funding the loan. This is not unusual with Construction Loans in Arizona. This is to make sure that once the home is finished, it will be equal in value or exceed the value of the loan that you are requesting. In some rare cases, when the home is completed, the borrower is unable to pay off the original construction loan and the lender is forced to sell the home to recover the original investment.
It can often take six months or more for a home to be built. And in that time, the market can fluctuate. The result of that fluctuation could be that the home is worth less than originally expected. For this reason, lenders often require a large down payment on Construction Loans in Arizona. The rate can start at around 20% and can even exceed 25% if the lender feels that there are inherent risks associated with the particular build. In addition, the borrower’s credit can have an impact on the amount that the lender want for a down payment. Traditional lenders always require a strong credit score when considering a construction loan but even a good score requires a substantial down payment.
Securing a construction loan is far more challenging than getting approved for a standard mortgage. But if you are interested in building a home, some type of construction loan is a must. An alternative lender such as a hard money lender is often a good choice for many first time home builders.
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis Dahlberg Broker/RI/CEO
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.