To start your project, you will need to pay for the land, material and labor, and, unless you have the cash to purchase and pay for the project, you will need a construction loan in Arizona. There are several ways in which a construction loan differs from a typical mortgage.
A conventional mortgage is quite simplified when compared with a construction loan in Arizona. These types of loans are short term in nature and lent on a building that does not exist yet. Like a credit card, a construction loan is a line of credit with one exception, the approval lays out when the draws are to be given. They are also known as progress payments. The lender approves the contractor based on a specific set of factors. A bank is going to make sure that you have enough cash to see the project to completion and that you have the ability to complete the project on time and within budget.
You will need to demonstrate to the bank, once the project is complete, that the project has a high enough appraised value to support the mortgage. While some contractors can obtain these types of loans from their local bank, Construction loans in Arizona are harder to find than conventional mortgages and face several stipulations. Those with a track record are more likely to be approved. Part of this stems from the fact that you will need to convince the bank that you have the ability and knowledge to complete the project.
In the construction business, there are two types of Construction loans in Arizona—a two-time close loan and a one-time close loan. The loan is disbursed by the lender on a pre-determined draw schedule basis following the various completion stages of the project. In essence, they will only pay for what is completed. With each draw the lender will hold back 10% which is called retainage. This is the lenders assurance that the project is completed correctly and is released upon the certificate of occupancy (CO) being issued.
Two-time Construction loans in Arizona
This is actually two separate loans, short term for construction and the second part is a permanent mortgage. When you finish the project and convert the loan into the mortgage, you are essentially paying closing costs and getting approved all over again.
Pros
· You can shop around for permanent financing
· Rates are lower than one-time close loans
Cons
· If you do not get permanent financing, you could get foreclosed upon
· There are two closings which means you need to get approved twice and pay two closing costs
· You face risks if your financial condition changes before permanent financing
It can be very difficult for owner builders to secure financing. Since your loan is on something that does not exist yet, lenders consider this type of loan high risk.
You will need to convince the Hard Money lender that you can get the job completed on time and within budget. An essential part of the project is an accurate budget. An appraiser will be assigned to your project to determine the value. You need to be conservative in your estimate or the lender will not believe the project can come in under the loan amount and within budget. At Level 4 Funding, we work with hundreds of private investors that offer loans on just about every type of project. Call us for a no-obligation quote.
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
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.
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