There are numerous types of Arizona construction loans that can get you started as a contractor. Understand which one is best for your business before you start your first project.
If you are thinking about building your home instead of purchasing an existing one, you will not be getting a traditional mortgage. What you will be getting is a Arizona construction loan. If you go the route to secure a Arizona construction loan for your new home, then you will be faced with a loan that has higher interest rates and a shorter term. This type of loan can be used for rehabilitating your home or building it from the ground up. The projected value of the home upon completion is what the Arizona construction loan is based on. This differs from conventional loans which are based on fair market value.
The different types of Arizona construction loans are narrowed down to three types, which are;
· Construction to permanent: If you have construction plans for your new home then these loans are perfect. The builder of the project is paid based upon completion of the loan, also known as progress payments. You are able to lock in your interest rate at closing. The remaining costs are converted into a mortgage at closing. By locking in the interest rate, you are assured a steady payment.
· Construction only loans: Once your project is completed then the loan must be paid off. If you have a large cash reserve, then this is a good choice. The proceeds from the sale will enable you to cover the costs of a new build. If your new project will need a mortgage, you will need to search for a lender yourself and go through the approval process once again.
· Arizona construction loan for renovation: If you are searching for a fixer upper then this is the type of loan you want to use. Any renovations that you will be doing, and the purchase price will be wrapped up in the mortgage.
Arizona construction loans differ from conventional loans since conventional mortgage loans are paid out in one lump sum while Arizona construction loans are paid out in progress payments or installments. Once the project is finished, the full cost of the project is transferred to you.
What are Draws?
Progress payments are called draws. The builder is paid in installments, “draws” based on the project scheduled of building you laid out in your plans for the project. In most cases. you will need enough cash to pay for the cost upfront before the bank inspects the project to make sure the builder has completed that part of the project to qualify for the draw. You will need a builder that is dependable. The budgeting and scheduling of the project is vital and must work within the timeline both of you have established at the beginning of the project. Buyer beware, do your research on the lender before you begin the project.
There are many advantages of Arizona construction loans which include interest only loans, flexible terms, and structure that is added by additional scrutiny.
The disadvantages are that the Arizona construction loan is harder to qualify for, higher interest rates may apply, and shorter-term loans are much riskier. At Level 4 Funding, we are able to offer low interest rates with terms that range from 3 to 60 months. Call us today for a no-obligation quote.
Level 4 Funding LLC
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About: 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.
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