If you are looking to build a new home, you should be aware of the available construction loans that are available in the market. Learning about these construction loans, Arizona will prepare you well in advance when constructing your dream home. Different loans come with different terms and conditions which can be not for everyone. This article will shed more light on what you need to know about construction loans in Arizona.
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Types of construction loans
There are two types of construction loans. These are construction-to-permanent and stand-alone construction loans. Each of these loans is designed for specific borrowers and have their advantages and disadvantages.
Also commonly referred to as the one-time-close or the single-close constriction loan, it includes the costs of land purchase and the construction in a single loan. What this means is that the loan includes two loans that are combined in one. To qualify for this loan, the borrower will only qualify once and will receive interim financing during the construction phase. The rest of the balance is then changed into a permanent mortgage by the lender when the certificate of occupancy is signed or when the house is finished. During the construction of the home, the borrower will only pay the interest of the loan. The borrower receives the loan directly and is given one year to finish the construction.
This is a two-time close where the borrower receives two sets of funding for two closings. These two closings are the permanent mortgage and the construction part. The borrower does not have the option of locking the mortgage ahead of time. What this implies is that in the event that the rates of interests go up during the construction period, you may end up paying higher than average interest rates for the loan after completion.
Construction loan limitations
There are many construction lenders out there with the conventional construction loan requiring just a 5% down payment. Additionally, land can be used as equity instead of paying this down payment. There is also a 12-month seasoning requirement with the borrower has owned the land for at least 12 months. The appraised property value can further substitute the 5% down payment. The land given as a gift by family members is not allowed. Loans that amount to high-balance and conventional conforming limits are considered. This implies that if you live in high-balance loan limits’ states like New York or Hawaii, you can still qualify for the single-close construction loan.
Draws and inspections
After the routine checks are done, the lender allows the builder/borrower to take ‘draws’ in phases when the home is being built. During this phase, the lender sends field engineers, appraisers, and inspectors to ensure the builder has completed certain stages. It is only after confirming this that the builder will be allowed to take draws to pay subcontractors and buy building materials. The considerable funding will come once the construction has been completed. Once satisfied, the new homeowner will receive the keys from the builder and sign the occupancy certificate.
Selecting a builder
The most important thing when building a home is selecting the best builder. Be very cautious and take your time to look for the most ideal. Double-check their credentials, previous projects, reviews, and anything that can prove their legitimacy. Go for those with experience in the home design that you’re going for. Lenders will also help in double-checking their financial situation, track record, permits, credentials, and credit standings.
Benefits of a one-time close construction loan
- Fixed interest rates
- Reduced borrower’s risk
- You only need to qualify once
- Single appraisal requirement
- Reduced closing costs
- Avoid intervening liens
The method you will employ in financing the construction of your new home will play a significant role in the whole process as well as the final results. By working with Arizona construction loans experts, you stand a higher chance in building your dream home. Our one-time close construction loan in Arizona is among the best in the market. Take advantage and contact us today.