Building your own home is an exciting and fulfilling experience but can be complex and challenging. One of the biggest hurdles is securing the financing you need to realize your plans. That’s where construction loans come in. In this article, we’ll take a closer look at construction loans in Arizona, what they are, how they work, and what you need to know to get one. Construction loans are financing designed for people who want to build a new home. They differ from traditional mortgages in that they provide the funds you need to cover the cost of construction rather than just buying an existing home. The loan is typically paid out in stages as the build progresses rather than in one lump sum at the closing.
Why Build in Arizona
Arizona is one of the fastest-growing economies in the United States, from its bustling tech industry to its robust real estate market. The states offer a wide range of opportunities for businesses and individuals alike. As a result, Arizona’s job market has been growing rapidly in recent years, outpacing the national average in job growth.
In 2020, the State’s unemployment rate was 5.9%, lower than the national average of 6.7%. This low unemployment rate indicates a strong job market, indicating that businesses are hiring and expanding in the State.
Thriving Real Estate Market
Arizona’s real estate market has been growing rapidly in recent years. The State consistently ranks among the top states for home price appreciation. In 2020, its median home price was $267,000, higher than the national average of $248,000. The State’s growing population and robust job market have created a high demand for housing. This has led to higher home prices and a thriving real estate market. The population also continues to increase. The State’s growing population and robust job market have created a high demand for housing. Ultimately this has led to higher home prices and a thriving real estate market.
Growing Tech Industry
The State’s tech industry continues to multiply, with the State being home to a number of leading tech companies, such as Intel, GoDaddy, and Infusionsoft. This is primarily due to the State’s favorable business climate. Low taxes have created a growing talent pool, attracting tech companies to the State. It is a new hub for innovation and technology. All These factors make Arizona an attractive location for large and small businesses.
How Do AZ Construction Loans Work?
Construction loans in Arizona typically work as follows:
- Pre-approval: Before you start building, you’ll need pre-approved loan approval. This involves filling out an application, providing financial information, and checking your credit. The lender will use this information to determine how much they will lend you.
- Plans and specifications: Once pre-approved, you’ll need to provide the lender with detailed plans and specifications for your project. This will help them determine the construction cost and ensure everything is in order before they release the funds.
- Draws: As construction progresses, the lender will release the funds in stages called “draws.” Each draw corresponds to a specific stage of the construction process, such as excavation, framing, or electrical work.
- Final inspection: When a building is complete, the lender will conduct a final inspection to ensure that the work has been done to their satisfaction. If everything is in order, the loan will be converted into a traditional mortgage, and you’ll start making monthly payments.
Visit our loans page for information on obtaining financing in Arizona.
Common Borrowing Mistakes
Construction loans can be an excellent way to finance a new building or renovation project. Still, they come with unique challenges and risks that borrowers need to be aware of. In this article, we’ll explore some common pitfalls borrowers make with construction loans and how to avoid them.
Need help understanding the terms of the loan.
One of the most common mistakes that borrowers make with construction loans is needing to fully understand the terms and conditions of the loan. For example, construction loans are complex financial products that can involve multiple disbursements, construction schedules, and other requirements that can be difficult to navigate.
To avoid this pitfall, borrowers should take the time to read and understand the loan agreement before signing it. Instead, they should ask questions if anything needs clarification and ensure they know the interest rates, payment schedule, and other key terms.
Failing to budget properly
Another common mistake borrowers make with construction loans is failing to budget appropriately for the project. As a result, construction projects can be expensive and involve unexpected costs, such as material price increases or labor shortages.
To avoid this pitfall, borrowers should develop a detailed budget for their project that takes into account all of the expected costs, as well as a contingency fund for unexpected expenses. They should also work closely with their contractor or builder to ensure that the budget is realistic and that there are no hidden costs.
Need more collateral.
Construction loans are secured loans that require collateral, such as the property that is being built or renovated. However, some borrowers may need more collateral to secure the loan, making it difficult to obtain financing.
To avoid this pitfall, borrowers should have enough collateral to secure the loan before applying. In addition, they may need to provide additional collateral or consider alternative financing options if they do not have enough.
Choosing the wrong contractor or builder
Another common mistake borrowers must avoid with construction loans is choosing the wrong contractor or builder. This can lead to delays, cost overruns, and poor quality, ultimately impacting the project’s success.
To avoid this pitfall, borrowers should carefully research and interview potential contractors or builders before selecting one. They should ask for references, review their portfolio of work, and ensure that they have experience with the planned project type.
Failing to communicate with the lender
Finally, some borrowers may need help communicating with their lenders throughout construction. This can lead to misunderstandings, delays in loan disbursements, and other issues impacting the project’s success.
To avoid this pitfall, borrowers should maintain open communication with their lenders throughout construction. In addition, they should provide regular updates on the progress of the project and any changes to the budget or timeline. This helps ensure that the lender remains informed and engaged throughout the project, which helps minimize risks and ensure a successful outcome.
In conclusion, construction loans can be a great way to finance a building or renovation project. Still, they require careful planning and management to avoid common pitfalls. By understanding the loan terms, budgeting correctly, securing enough collateral, choosing the right contractor, and maintaining open communication with the lender, borrowers can minimize risks and maximize the chances of a successful outcome.
Zoning and Permits for Construction Loans in Arizona
Obtaining zoning and permits for construction projects requires coordination with several specific entities, including local government departments, state agencies, and private organizations. Here are some of the key entities involved in the process:
- Arizona Department of Environmental Quality (ADEQ): This agency is responsible for enforcing environmental regulations and issuing permits for activities that could impact air or water quality.
- Arizona State Land Department: Responsible for issuing permits for building on state trust lands, which are lands held in trust for the benefit of public schools and other public institutions.
- Arizona Corporation Commission: They regulate the construction of utility facilities, such as electric and gas lines.
When building your property, you will find that you will have to work with many private entities as well. Finding suitable hires is a crucial step in the building process. Throughout your journey, you will most likely need to work with the following:
- Engineering Firms: Private engineering firms may provide support services to property owners and contractors, such as conducting site assessments, preparing building plans, and submitting permit applications on behalf of their clients.
- Surveyors: Surveyors are responsible for creating accurate maps and boundary descriptions of construction sites, which are required for obtaining permits and conducting projects.
- Contractors: Contractors are responsible for ensuring that all building activities comply with the conditions of the permits and local regulations.
Commercial Project Developments
Arizona’s development has remained strong despite Covid-19. Reputable firms, for instance, continue to build the ASU Beus Center for Law and Society. Featuring a new 280,000-square-foot building in downtown Phoenix, it houses the Sandra Day O’Connor College of Law. The project was designed by Ennead Architects and constructed by DPR Construction. The Banner University Medical Center is another example. Located in downtown Phoenix, a 16-story tower is part of a more extensive $1 billion medical center expansion. The tower included 256 private rooms and was constructed by McCarthy Building Companies.
Other notable examples include the Grand at Papago Park Center. Massive mixed-use development in Tempe contains 1.8 million square feet of office, retail, and residential space. This project was developed by Lincoln Property Company and designed by DAVIS. Last but not least is the Biomedical Sciences Partnership Building. It is a new research facility in downtown Phoenix that collaborates with the University of Arizona and Arizona State University. The project was designed by CO Architects and constructed by DPR Construction.
Loans specifically for construction
Construction loans in Arizona offer many benefits, most notably customization. Think of building your dream home to your exact specifications. You have complete control over every inch of design and layout. Thus creating the house you always wanted. In many cases, they can be more cost-effective than buying an existing home. You choose the materials and find land is undervalued or early to a new area, and you are well on your way to hacking the system.
Finding a loan in the State, you want to work in takes a lot of work. Tier Group works all over the country to make this possible, including: