Construction Loans in Phoenix and Throughout Arizona
Mortgage Capital and Investment has the resources requisite to issue Arizona construction loans for almost any scenario. Our knowledge of the building process and solid understanding of how to structure loans for both builders and borrowers give us a strong advantage over other brokers and lenders. When you use MC&I for construction loans, you will enjoy the peace of mind of knowing that you are dealing with a company that has closed on loans that range from $100,000 to $5 million. Our vast body of experience in construction lending for Phoenix and other major cities in Arizona will help you feel comfortable in the hands of our loan consultants.
Loan to Cost vs. Loan to Value
Lenders use two different methods to evaluate Arizona construction loans: the loan to cost and the loan to value method. How your lender evaluates your construction loan will have a significant impact on the amount of money you must put down in order to close the loan. Typically, the loan to value method yields the lowest down payment and sometimes no down payment at all. For the loan to value method to work with minimal out-of-pocket costs, the land must be owned free and clear or have substantial equity. By contrast, the loan to cost method requires equity in the lot or a down payment that also includes items paid during development, such as plans, permits, engineering, etc. The calculations for both methods are explained below.
- Loan to cost: (lot value + cost to build)/ Total cost – lot equity and prepaid items=LTC. In an 80% loan to cost scenario, the borrower would need 20% in lot equity, prepaid items, or a down payment upon closing.
- Loan to value: (cost to build + existing liens)/ appraised value=LTV. In an 80% loan to value scenario, the borrower would need 20% equity in the finished product or pay the difference with a down payment upon closing.
Construction Loan Programs
You can find a description of MC&I’s most popular Arizona construction loan programs below. We can offer any one of the following loans to borrowers in Phoenix, Tucson, Scottsdale, Flagstaff, and other Arizona cities.
- One-time close construction loan. A combination of construction and permanent financing in one loan. The one-time close construction loan allows the homeowner to lock in a fixed rate and save money by paying only one set of closing costs. The one-time close is ideal when the land is owned outright or the owner has invested a large amount of money in the project.
- Two-time close construction loan. A combination of construction and permanent financing in two loans with two separate closings. The two Arizona loans are approved simultaneously, but the borrower must maintain the approval on the permanent financing, or take-out loan, during the construction period. The two-time close always uses the loan to value calculation method, which allows the borrower to make less of a down payment, if any.
- Owner builder construction loan. Enables the borrower to build a home without hiring a general contractor. This loan option can save the homeowner a substantial amount of money, but the homeowner must prove to the lender that he/she has the expertise to build a home in order to get approved.
- Spec home construction loan. A loan for Arizona builders or investors who would like to build a house in order to sell it. Non-recourse borrowers are eligible for spec home construction loans, which means that builders can borrow the funds through their corporation. Because the loan to value ratio is lower with this option, borrowers must have more cash or equity in the project.
- No payments during construction loan. The lender builds an interest reserve into the borrower’s cost breakdown and withdraws the monthly payments from the line item until it is exhausted. If borrowers have sufficient equity in a project, they can use this option on any type of Phoenix metro area construction loan.