How to Get a Construction Loan for Your New Build

Building your dream home is an exciting journey. However, understanding how to get a construction loan for a new home is crucial before you begin. Let’s break down everything you need to know, from types of loans to converting your loan after construction.

What Is a Construction Loan?

A construction loan is a short-term financing option designed to fund the building of a new home. Unlike a traditional mortgage, which pays for a completed house, this loan covers the costs associated with building, including materials, labor, and permits.

How It Differs From a Traditional Mortgage

A traditional mortgage provides a lump sum to purchase a ready-to-move-in home. In contrast, construction financing distributes funds in stages as the build progresses. Importantly, borrowers typically make interest-only payments during the building phase, allowing for easier budgeting.

Types of Construction Loans

Understanding your loan options is vital. Here are two main types to consider:

• Construction-Only Loan: Finances only the building phase. After completion, you must apply separately for a mortgage.
• Construction-to-Permanent Loan: Converts into a regular mortgage once the home is finished, saving you time and additional closing costs.

Typical Construction Loan Terms and Conditions

• Short-term, usually 12–18 months
• Higher interest rates than traditional mortgages
• Strict draw schedule tied to construction milestones
• Detailed inspections required before each draw

The Steps to Getting a Construction Loan

Here’s a clear roadmap to securing financing for your new home:

Step 1 – Create Detailed Building Plans and Get Estimates

Start by working with a licensed architect or designer. Your plans should outline everything, from layout to finishes. Then, gather contractor estimates to understand the total project cost, ensuring there are no surprises later.

Step 2 – Choose a Licensed Builder

Next, select a reputable, licensed builder with a solid track record. Lenders often require builder approval, so choosing wisely can make the process smoother.

Step 3 – Apply With a Lender That Offers Construction Financing

After you have your plans and builder in place, apply with a lender experienced in this type of loan. Ideally, choose one familiar with your local market to avoid potential delays.

Step 4 – Go Through Approval, Appraisal, and Closing

Approval involves credit checks, income verification, and project evaluation. Afterward, an appraiser will assess the projected value of the completed home. Finally, you’ll close on your loan and construction can officially begin.

What Happens After Construction Is Complete?

The Certificate of Occupancy

Once your home passes final inspections, your local municipality will issue a certificate of occupancy. This important document confirms that the home meets all building codes and is ready for you to move in.

Converting the Loan to a Permanent Mortgage

If you used a stand-alone construction loan, you must apply for a new mortgage. This process, called converting a construction loan to a permanent mortgage, requires a fresh application. However, if you chose a construction-to-permanent loan, it will automatically transition into long-term financing, simplifying your life.

When Does Agave Home Loans Get Involved?

Agave Home Loans steps in right after you receive your certificate of occupancy. We specialize in helping you secure an affordable, permanent mortgage quickly and easily.

Why Work With Agave Home Loans After Construction?

Choosing the right lender for your permanent mortgage is essential. Here’s why partnering with Agave Home Loans makes a difference:

Seamless Transition Into a Permanent Mortgage

We manage the entire process for you, ensuring a smooth, stress-free experience from construction completion to full homeownership.

Competitive Rates, Fast Process, Expert Arizona-Based Team

You deserve a team that understands the Arizona market inside and out. Our local experts offer many advantages, including:

• Competitive mortgage rates
• Lightning-fast closings
• Deep knowledge of Arizona permitting and property laws
• Friendly, clear communication at every step

FAQs About Construction and Permanent Loans

What credit score is needed for construction financing?

Most lenders prefer a minimum credit score of 680. However, some require 720 or higher for the best terms.

Can I choose any lender for the permanent mortgage?

Absolutely! You are not obligated to use your builder’s lender or initial loan provider. In fact, shopping around often saves you money. Consider talking to a mortgage broker and a mortgage lender to compare rates and costs.

What’s the difference between construction financing and a mortgage?

The first funds the building process and is short-term. Meanwhile, a mortgage finances the purchase of a completed home and typically spans 15–30 years.

Do I need a down payment for construction financing?

Yes, you usually need to put down 20% or more. Lenders want to ensure you are financially invested in the project and can cover the costs of the construction loan.

Can I use land equity as a down payment?

Often, yes. If you own the land where you’re building, its equity can count toward your down payment.

Arizona Construction Financing Tips

Building in Arizona comes with its own unique considerations. Keep these tips in mind to stay ahead:

• Permitting Timelines: Arizona cities and counties can have varying permit processing times. Therefore, plan early to avoid delays.
• Builder Vetting: Choose builders familiar with Arizona’s climate, soil types, and energy efficiency standards to protect your investment.
• Lot Preparation: Ensure your lot is properly prepared for building, especially in desert areas prone to shifting soils.