Drawbacks of Construction Loans in Arizona

What Are Construction Loans?

If you are interested in building a new home and do not have the cash to pay upfront, then learning about Construction Loans in Arizona could turn your dream into a reality.

Most people who are searching for a new home are focused on finding that perfect place and then securing a mortgage to pay for it. In some cases, a buyer will prequalify for a loan before shopping, but a traditional mortgage is what most buyers envision as the loan for their new abode. But if you decide that building your dream home is the way to go, then a traditional mortgage might not meet your needs. Instead, you will need to understand the function and processes involved in Construction Loans in Arizona.

Construction Loans in Arizona are most often a short-term loan used to pay for the cost of building a home. A traditional mortgage does not work in this case as the mortgage is secured by the value of the home it is being used to purchase. And with no home in place, the bank will not approve a traditional loan, But a construction loan is specifically designed to provide the funds needed to build and the time frame for construction as well. Then when the house construction is completed, the construction loan must be paid off. Most buyers will then finance a traditional loan to pay off the construction loan. The new loan is often called an end loan.

Securing Construction Loans in Arizona from a traditional lender can be difficult. The loan is based on the expected value of the home once it is built but things can go wrong during the construction process which can change the value and leave the lender with an unsecured loan. In addition, there can be issues with the builder which might result in the house not be completed on time or at all. For all of these reasons, banks and mortgage companies impose many strict guidelines on a construction loan.

Common Construction Loan Provisions

Traditional lenders can impose some or all of the following guidelines to be certain that they are protected from a failed build process or a decreased final home value. The lender can require that a qualified builder be awarded the contract. The lender can also demand to approve the design and details of the home. And once the final design is approved, the lender could request that an additional estimate of the homes completed value be assessed by an appraiser. And finally, the lender will demand that the buyer make a down payment of at least 20% but sometimes 25% or more.

Difficulties in Securing a Construction Loan

In addition to all of the requirements of a traditional lender, the borrower must have very good credit to even be considered for a construction loan. All of these processes and requirements mean that not a lot of buyers can get the loan that they need to build their dream home. But for those who are certain that a new build is what they want and need, then Arizona Hard Money Lenders offer a great alternative to a traditionally funded construction loan.

Dennis Dahlber Broker Ri CEO Level 4 Funding LLC
Dennis Dahlberg
Broker/RI/CEO/MLO

Level 4 Funding LLC
Hard Money Lender

Hard Money Loans

Hard Money Loan

Arizona Tel: (623) 582-4444

Texas Tel: (512) 516-1177

Dennis@level4funding.com

Dennis Dahlberg Broker/RI/CEO

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.