Posts

All You Need To Know About Arizona Construction Loans

Whether you’ve recently purchased land you want to build on or are currently considering it, you’ll most likely be in need of a construction loan. Here’s everything you need to know about getting a construction loan in Arizona so you can get quickly on your way to building your dream home!

What is a Construction Loan?

A construction loan is a specific sum of money that you will use to fund your building project. Like most other types of loans, a construction loan is paid back gradually in installments, according to pre-set rules laid down by the lender. Construction loans are often paid out by the lender in installments as well, usually as the project goes along and hits specified milestones.

Why You Shouldn’t Just Get a Regular Loan

You may be wondering why you shouldn’t just apply for a regular (lump sum) money loan that can be used for general purposes in order to fund your construction project. However, there are some great reasons to apply for a specific Construction Loan as opposed to a regular loan.

Because the loan is focused entirely around a construction project, the funds are released in stages as the project moves along. This helps you keep on track and stay within your budget, and it also means you will actively be using the money instead of getting approved for it and then just letting it sit (which happens all too often with regular loans). Furthermore, construction loans often come with more flexible terms than regular loans, allowing you to pay it back after the project is completed rather than expecting payments before you are done.

Consider a Hard Money Loan Instead of a Bank Loan

When it comes to home construction, a hard money loan is often the way to go instead of going through a bank. A hard money lender has less stringent rules on how the money can be used and when it needs to be paid off, giving you more time and flexibility with your project. While a hard money loan can sometimes cost you more in the long run than a bank loan, you are also more likely to get approved for one. This is because hard money lenders look more at the project’s potential and its likelihood of being completed rather than at personal credit scores and financial history.

Bank construction loans meanwhile have more stringent standards and can be difficult to get approved without either making significant changes to the construction plans or having a really solid credit and financial history. These types of loans are often “one size fits all”, and if you do not fit into their specific box of requirements, you will not get approved (and even if you do, the pay-back requirements can be very strict). Hard money construction loans are meanwhile more lenient, and they focus on the project as a whole rather than the specific person.

How to Apply for a Construction Loan

Banks require a ton of paperwork and documentation of financial history prior to approving you for a loan, but hard money lenders usually only require their application to be completed and do not need as much paperwork. That said, you will still need to outline your project and be able to show how you plan to achieve your construction goals. Bank approval can take days if not weeks, but approval from a hard money lender can come within 24 hours. Following approval, your property and project will still need to be appraised to ensure you are getting the money you need and that everything is in order.

Construction Loans Can Be Used for Land As Well

It’s worth noting that construction loans can also be used for purchasing land to build on (although they may sometimes have an add-on termed “land loan”). This can be very helpful if you are still in the initial stages of your project but have a clear idea of what you want to achieve. Once approved for your loan, you can buy the property of your dreams and start making your construction goals come to life!

Have more questions? Talk with a lender today about your options!

Hard Money Lending for Your Construction Project

When most people think of hard money lending situations, they think of borrowing the money to purchase a home you intend to use as an investment. However, this isn’t the only use for this type of loan. In fact, you can also use them for certain construction projects. The benefit of choosing these types of loans over traditional loans is you can borrow an amount based on the potential value of the completed project rather than the current value of the home.

Why Hard Money Lending Is Better

If you seek a traditional loan for your construction project, you will be severely limited based on the current value of your property and how much equity you have. Hard money lenders often operate differently. These individuals are more interested in the investment potential of a property and are thus more likely to lend you a larger amount based on how much the construction project is projected to increase the value of the property. They also don’t place importance on your current credit score or many of the other factors traditional lenders take into account to determine whether you qualify for a loan and for how much. These loans can be used to start a new project or complete an unfinished project you ran out of money to pay for.

How to Locate the Right Hard Money Lender

Not all hard money lenders are interested in borrowing to individuals who need the money for a construction project. This can make it a little more difficult to find the right one. First, it’s important to inquire whether they have experience in construction lending. Once you find several that offer lending for construction projects, look up reviews on third-party sites to ensure you work with an individual who has a solid reputation in the field. Once you choose a hard money lender, you will need to provide the precise details of your construction project. This can help them decide whether they are willing to take the risk of lending the money for this type of project. Once they evaluate the property, the scope of the project and the prospective increased value the project will bring, they will be able to offer the money you need to get the construction project done.

Choosing a hard money lender for your construction project is one of the fastest, easiest ways to fund this type of project. These types of loans are often easier to acquire than obtaining money from traditional lending institutions, such as banks, because they don’t look at the current value or even your credit history. They are more interested in the potential for the increase value of the property as an investment opportunity.