1. Going to the bank to get a home loan is a nerve-wracking process but one that many people are familiar with. The loan approval is based on the borrower’s creditworthiness but also the value of the property that the borrower wishes to purchase. This is because the value of the property represents a certain level of security for the lender. In the event that the borrower defaults on the loan payments, the lender is able to recover some or all of their investment by taking possession of the property. But in the case of building a new home, there is no existing property to be used as the collateral for the lender. In these cases, construction loans Arizona are used to fund the building of the new home.
There are two types of Arizona construction loans that borrowers can choose from. The first is a construction-to-permanent loan which pays for the construction of the home and then the lender converts the loan balance to a more traditional mortgage. The second option is a stand-alone construction loan. This is exactly what the name implies. The loan pays off the construction of the home only. When the borrower’s home is completed, he or she must finance a traditional mortgage to pay off the balance of the construction loan.
Securing a construction loan is more challenging than qualifying for a traditional mortgage simply because there is no real property to uses as the collateral for the loan. Lenders will want to know all of the standard loan information about the borrower but they will also want to know a great deal about the proposed home. Information regarding the size of the home, the material being used for construction and the contractors and subcontractors who will be doing building the home. All of this information allows the lender to project the potential value of the completed home and the security that it would represent if the borrower defaults.
In addition to having a good credit score and the home having a good market value, the lender will require borrowers to show proof that they have a good amount of savings for construction overruns or contingencies. There is not a specific number or percentage that all lenders require for construction type overages, so borrowers will want to verify with each lender what is recommended.
Construction loans in Arizona hold much more risk for lenders, therefore they are more expensive and will include more inspections and contact throughout the construction process. Lenders want to see continual progress on the project, only standard building methods and practices and quality workmanship from the contractors. If building your new home is your dream, then be certain to complete your research to know the requirements and process for securing a construction loan. You will face more scrutiny when seeking the loan but your custom home is certainly worth the extra effort.
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.