The construction loan proceeds are used to finance some type of construction, typically home renovation. The underwriting of this type of loan is focused on how the lender is going to be repaid. Pretty straightforward, right?
Unlike a mortgage, which in most cases lasts 30 years, Construction loans in Arizona are shorter terms. The lender considers these loans a higher risk than a mortgage and, therefore, has higher interest rates. The lender gives the money to a building contractor instead of a homeowner. The loan is often disbursed in stages, called progress draws, instead of one lump sum. This disbursement is released based on stages of progress as laid out by the borrower in the loan application. Once the project has been completed, the loan will either be paid in full or converted into a permanent mortgage.
· Renovation loan
· Stand-alone loan
· Construction to permanent loan
A renovation loan entails the borrower loading the loan with costs to cover the entire renovation and construction project into the final mortgage. This loan is often utilized by a borrower with properties in need of substantial repair.
A stand-alone loan is the first loan which will pay for the construction. Upon completion of the home, the contractor or investor then moves into a traditional mortgage. All the debt for the construction of the home is rolled into the second loan to pay off all the bills. This type of loan is good if you have solid cash reserves.
Lastly, a construction to permanent loan is money you borrow to pay for the construction of the home itself. After construction is finished and you move in, the loan becomes a mortgage. The interest rate for this type of loan is fixed. The vast array of costs for building your project will be covered by the construction loan. This vehicle fits the first-time home builder. For your own building project, this is an attractive option.
Building a new home or renovating an existing one determines the type of construction loan that will be right for you. If you are a new builder, then be prepared to prove to the lender that you are financially solid and that your blue prints for the project are sound and achievable. Upon proving that you are solid, and your plans and budget are clear and concise, then the lender will make the loan. The loan is not paid in a lump sum but is disbursed in progress payments as you reach mile stones on the project.
Construction loans in Arizona can enable you to be a first-time home owner as well as a contractor or investor getting in on the lucrative real estate market. For traditional Construction loans in Arizona, you will need adequate credit scores and a project plan. No matter which type of loan you apply for, it is very important that you establish and maintain a good relationship with the lender and keep open communication lines throughout the process.
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.