Most investors going for an Arizona Construction Loanwill be looking for a short-term option with two closings. This involves drawing funds as needed, with the principal balance increasing over the months financing is active. The borrower typically pays interest-only payments for the duration. A second loan process and closing occurs when construction is complete, providing long-term financing for the property. The second closing is usually handled buy a buyer, but it can also be handled by a builder or investor who wants to hold the property. As an alternative to this, a single-close option is sometimes available. However, it typically only applies when the individual securing the financing plans to hold the property for an extended period of time. In these cases, cash can still be pulled as needed during the build and interest-only payments are made. However, once construction is complete, the loan is automatically modified to fully amortized payments.
An Arizona Construction Loanis often ideal even if a project isn’t starting from scratch, simply because there aren’t typically rules about how much of the funds need to go directly to improvement. There may also be differences in where the funds are held—an interest-bearing account versus drawing from the loan—and in when mortgage insurance is necessary. If you’re not sure which one is best for your circumstances, connect with a broker who specializes in both and can help you find the best structure and financing for your needs.