Construction Loans for New Homes

Are you looking for information on construction loans? If you’re curious about building a home in Arizona, you might have come across construction loans. Don’t worry if it sounds a bit tricky; we’re here to break it down for you in a way that’s easy to understand. Plus, we’ll chat about the good stuff (pros) and the things to watch out for (cons) when it comes to these loans. And guess what? We’ll even show you how construction loans are like and different from other types of loans like FHA, Conventional, VA, and USDA loans. Let’s dive in!

Getting to Know Construction Loans in Simple Words

Imagine you have this great idea for your home and you want everything to be just the way you like it, from how the rooms are set up to the color of the walls. Now, to make this dream home come true, you need money and that’s where construction loans come into play and can help you.

Think of construction loans as something that helps build your new home from the ground up, as in just a plot of dirt and your imagination is the limit. A lender gives you the cash you need to buy materials, hire contractors and designers, and bring your dream home to life. These loans are a little different from regular home loans because they focus on the process of building a house, not buying an existing one.

The Good Stuff and the Things to Watch Out For

The Pros (Good Stuff):

1. Design Your Way: With construction loans, you get to choose design of your home, it’s like creating a masterpiece from scratch. You get to choose everything from your appliances down to the kitchen handles. While this is definitely a pro, there are lots of options to consider so be prepared and have some time set aside to make all these detailed choices.

2. Totally New: You will be the only owner that has lived in that house, meaning a fresh slate for you and your family without worrying about any missed nuance that could come up.

3. Added Value: Newer homes typically have the newest materials and latest technology, this could pay off in the long run if you ever want to sell. From windows to internal wiring, the best part about a newly constructed home is the materials that used to be upgrades are now standard.

The Cons (Things to Watch Out For):

1. A Bit Complicated: Building a home is more complex than purchasing an existing house. You need to work closely with contractors and the lender to make it happen. This can come with set backs

2. Time-Consuming: You most likely won’t be living in this new house for another 6 months to a year from purchase date, simply because it has to be built first.

3. Surprise Costs: Sometimes, costs can show up during construction that might affect your budget and leave you with expenses you weren’t expecting. Knowing this, it’s best to have a reserve amount saved in case this happens.

Construction Loans and Their Friends: Similarities and Differences

Construction loans are similar and different from other types of loans you might have heard about.

What’s Similar:

FHA Loans: Both FHA loans and construction loans help you buy a home, but there’s a catch. FHA loans are for homes that are already built, while construction loans are for building brand new homes.

Conventional Loans: These loans are pretty similar to FHA loans. They’re usually for homes that are already standing, while construction loans are all about building something new.

What’s Different:

VA Loans: VA loans are cool because they’re for veterans and their families. Construction loans aren’t just for specific groups; they’re more about creating homes from scratch.

USDA Loans: USDA loans help people in rural areas buy homes. But here’s the thing: construction loans can be used anywhere, as long as you’re building a new home.

Requirements to Get a Construction Loan: What You Need to Know

Getting a construction loan is a bit like preparing to bake a cake – you need the right ingredients to make it work. Just as a cake needs flour, sugar, and eggs, a construction loan needs a few things too. These requirements are like a checklist to make sure you’re all set for this exciting journey of building your dream home. Let’s break them down:

1. Good Credit:

Think of your credit score as your game score. Just like when you play a video game, a high score here is awesome! Having good credit shows that you’re responsible with your money. It’s like getting a thumbs-up that says, “Hey, this person knows how to manage their finances.”

2. Detailed Plans:

Imagine you’re entering a cooking contest. Before you start, you need to show the judges your recipe. In the same way, when you’re getting a construction loan, they’ll want to see your plans for your dream home. This is to make sure you’re not just dreaming but have a solid plan to turn it into reality.

3. Down Payment:

Think of a down payment like bringing your favorite dish to a party. It’s like saying, “Hey, I’m excited to be a part of this!” For a construction loan, you’ll need to bring some of your own money to the table. This helps show that you’re serious about building your home. Usually, they might want around 20% of what your home will be worth in the future.

4. Proof of Income:

Imagine you’re on a team, and you need to show you have the skills to play. That’s what proof of income does for a construction loan. It’s like saying, “Look, I’ve got a steady stream of money coming in.” This way, they know you’ll be able to pay back the loan as you build your home.

Where in Arizona Can You Build Easier?

Now that you know what you need for a construction loan, let’s talk about whether some places in Arizona make it a bit easier to get one. It’s like finding the perfect spot to set up your baking station!


Phoenix is a big city, like a bustling kitchen with lots of ingredients. Because it’s big, there might be more builders and lenders available. This can be super helpful when you’re hunting for a construction loan. It’s like having more options to choose from.


Tucson’s real estate market is like a diverse menu with many choices. Because there’s a variety of homes being built here, it might be easier to find construction loans. It’s like having different flavors to choose from in your favorite ice cream shop.


Flagstaff is a wonderful place, beautiful mountains and fresh, clean air. Potential builders might want to build here because of the smaller town feel and plentiful outdoor activities. Given its growing popularity, more builders means more chances for construction loans.

Wrapping Up Construction Loans

So, now you know the ingredients you need for a construction loan – good credit, detailed plans, a down payment, and proof of income. Plus, you’ve got the scoop on some spots in Arizona that might make it easier to get a construction loan.

Remember, just like baking a cake takes time and effort, building your dream home does too. But when it’s all done, you’ll have a fantastic new place to call your own, made just the way you like it. Happy building!

Marshall Gottlieb - Co-Owner and CEO
Marshall spent seven years in hospitality and the restaurant industry prior to beginning a career in real estate and lending. After obtaining a finance degree with an emphasis in investments from Northern Arizona University, he began working at Quicken Loans. He spent seven years there as a banker and then Senior Director prior to co-founding Agave Home Loans. (NMLS ID: #1107208)

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