How to Get a Construction Loan in Arizona

Share Post:

construction workers on top of the house

How to Get a Construction Loan in Arizona

If you need help getting construction loans Az, you came to the right place! Whether you already have land or not, and you want to seek permanent financing for your dream home or a commercial building, we will guide you through getting credit approval with favorable interest rates. Or, if you want to seek shorter-term construction loans, we can help you with that. The loan process can be tricky with some loan programs that have different requirements. Whether it is construction to permanent loans, or lot loans, we will guide you through the process to choose the right construction loan that will save money for you in the long term and break ground sooner.

 

Aside from offering tips to get a construction loan, we also advise about Jumbo loan limit Arizona and learn more about Arizona VA home loans. Learn more from the most dependable experts on Jumbo Loans Arizona has available.

What is a Construction Loan?

A construction loan is a shorter-term loan package available for applicants who already have land. Construction loans differ from mortgage loans because these are tailor-fit for people who are building a new home. The interest rates are usually higher for construction loans because of the additional risk involved and the lack of collateral. However, you can get a lower interest rate for your dream home construction loan if your credit score is high enough.

Construction Loan Coverage

There are many costs associated with building a home. Construction loans usually cover all of them. Here are a few items that construction loans cover:

Contingency Reserves

Contingency reserves are the amount of money kept in the bank or an account to cover unexpected costs which may be needed during the construction process.

 

Interest Reserves

To ensure you won’t miss any payments, some lenders require you to set up an interest reserve. An interest reserve is an account that contains enough cash to cover interest payments on your loan throughout the construction period.

 

Closing Costs

These are a total of all related expenses, including fees, that you need to pay when you complete the purchase process for your home. Inclusions are getting a home inspection, agent fees, and other related expenses.

 

Labor and Materials

Construction loans also cover the cost of labor and material. You will need proof or documentation that states how much money you have allocated for your project.

 

Permits, Fees, Plans

Before moving forward with the loan process, you will need to provide architectural plans. The lender will use this to determine how much cash they can lend you for your construction project. The construction loan will also cover fees, permits, and plans.

 

Land

If you don’t have land to build your own house, you can use the construction loan to purchase the land.

How Does a Construction Loan Work?

Home remodeling loans: loans are also available to finance home renovation work.

 

Loans for new construction: If you seek to build a new home, then this is the perfect loan for you. You may ask your mortgage advisor for the best packages with lower interest rates and better payment terms.

 

End Loans: There may be situations when you need to pay off your construction loan, which means a one loan process may not be sufficient. An end loan is a form of a traditional mortgage that you can take out for this purpose.

 

Owner-builder Loans: These are low-interest rate loans offered to owners who build their own homes.

 

Construction-to-Permanent Loan: These loans cover both paying the cost of construction and financing the mortgage. These loan packages usually come with lower interest rates.

Loan Application Requirements for Construction Loans

Before you can take out a construction loan, here are four essential things you need to take care of to qualify:

 

Credit Score: Most lenders will require a credit score of 640. Though you can get home loans with a lower credit score, the interest rates, and payment terms will usually be higher.

 

Down Payment: Most lenders will require a down payment of at least 20% of the total construction costs. You can shop for lenders as some may offer lower down payments.

 

Debt-to-income ratio: Most lenders may not lend you money if your debt-to-income ratio is more than 50%.

 

Repayment Plan: You may negotiate your repayment plan with your lender. The repayment plan considers monthly instalments paid throughout the construction period. You may select one-time close terms or a two-time close whichever you can manage.

How to Start?

Select the type of loan you need: Select the best loan type to fit your needs. Depending on considerations such as cash-on-hand, or the availability of land, among others, you can determine the right loan amount with favorable interest rates. Study the pros and cons of each closely so you wouldn’t be tied up with disfavorable payment terms in the long run.

 

Boost your credit score: There are different ways to fix your credit score. You can start by getting an accurate report through credit bureaus such as Equifax. Note: you need to be careful with providing accurate financial information to avoid errors.

 

Find a builder: After you buy land, the next step will be to find a licensed builder familiar with local regulations and building codes. They will help you ensure that you won’t get into trouble once third-party inspections happen.

 

Prepare all the relevant documents: Lenders will usually require the following documents: proof of income, proof of ownership, appraiser’s estimate of the value of the property, blueprints and construction plans, proof of identity, among others.

 

Preapproval: Getting a preapproval letter can give you an edge when bidding against other lenders. This preapproval letter tells lenders that you are serious and your loan takeout is more likely to close. Getting preapproved shows that a lender has an evaluation of your finances and can show potential mortgage lenders how much you can afford to borrow. Preapproval can save you time later because most of the information a lender requires is already available.

Takeaways: Valor Mortgage Is Always Here To Help

One of the missions of Valor Mortgage is to provide homebuyer education for first-time homebuyers. The last thing we want to see is for our clients to get into trouble servicing their repayments. Plunging headlong into construction loans can be dangerous. Even with a permanent loan, planning is the key, and nothing but the best advice is all you need for one of the most substantial investments you will make in your lifetime. My best advice is to reach out ASAP if you are a first-time homebuyer who wants to look for the best mortgage programs. We might find the best mortgage program with lower mortgage insurance premiums or lower interest rates that can fit your specific credit score requirements and income limits, among other considerations, to help you through the entire loan process.

Leave a Comment

Your email address will not be published.

FIRST WEST FINANCIAL

(760) 488-6482

    Looking To Refinance Your Home?

    Fill out our fast refinance evaluation to calculate a lower mortgage rate & payment. We make the process quick & easy.

    0%

    Great! What type of property are you purchasing?

    5%

    Estimate your credit score.

    10%

    What year did you purchase your home?

    15%

    Please estimate the value of the property.

    $0 to $0


    20%

    What is the remaining 1st mortgage balance?

    $0 to $0


    25%

    What is your 1st mortgage interest rate?

    0


    30%

    How will this property be used?

    35%

    What kind of rate do you have?

    40%

    Do you have a second mortgage?

    45%

    Would you like to borrow additional cash?

    $0 to $0


    50%

    What is your employment status?

    55%

    Bankruptcy, short sale, or foreclosure in the last 3 years?

    60%

    Can you show proof of income?

    65%

    What is your average monthly income?

    $0 to $0


    70%

    What are your average monthly expenses?

    $0 to $0


    75%

    Do you currently have a FHA loan?

    80%

    Any late mortgage payments in the last 12 months

    85%

    What is your full name?

    90%

    What is your email address?

    95%

    What is your email address?

    100%

    NMLS Consumer Look Up | NMLS 2886482

    FIRST WEST FINANCIAL

    (760) 488-6482

      FREE Home Purchase Qualifier

      Do you know how much home you can afford? Take the first step by getting pre-approved here for FREE!

      0%

      Great! What type of property are you purchasing?

      6%

      Estimate your credit score.

      12%

      Is this your first property purchase?

      18%

      What is your current property purchase situation?

      25%

      How will this property be used?

      31%

      What is the purchase price of the new property?

      $0 to $0


      37%

      What is your estimated down payment?

      0% Down


      43%

      What kind of rate do you prefer?

      50%

      What is your gross annual household income?

      0 to 0


      56%

      Estimate your credit score.

      62%

      Bankruptcy, short sale, or foreclosure in the last 3 years?

      68%

      Can you show proof of income?

      75%

      Are you working with a real estate agent?

      81%

      What is your full name?

      87%

      What is your email address?

      93%

      What is your phone number?

      100%

      NMLS Consumer Look Up | NMLS 2886482