Construction Loans in Arizona

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5 Best Construction Loans in Arizona

Key Terms

  • Construction loans are a type of financing used to fund the construction of a new building or renovation of an existing one.
  • In Arizona, construction loans are typically short-term loans with high interest rates and require borrowers to provide a significant amount of collateral to secure the loan.
  • Borrowers should carefully consider the terms and conditions of a construction loan, including the interest rate, repayment schedule, and fees, before agreeing to take out the loan. It is also important to work with a reputable lender who understands the local market and can provide support throughout the construction process.

Everyone knows that Arizona is benefiting from an influx of retirees searching for sunshine and relatively low housing prices for their dream homes. The most recent U.S. Census data shows a growth of nearly 12% population increase over the past decade.

The local population is starting to feel the impact of the net migration, with housing prices consistently rising and real estate inventory levels shrinking. As of May 2022, the average sales price of a home in Tucson is $477,219 according to the Tucson Association of Realtors but meanwhile new listings have fallen by 6.3%. 

At these prices and with this level inventory, many Arizonans are seeking home construction loans to build their own home. Construction loans also allow you to remodel or make an addition to your home, which is often a good choice to increase your property value while decreasing the transaction costs involved in moving. These loans are also often a better choice than getting into a bidding war for a home in a market where demand is greater than the supply of homes.

Construction loans work differently than traditional borrower mortgages or even a refinance. For this reason, it’s important to deal with a lender that’s familiar with the construction loan financing in Arizona. Many Arizona banks, credit unions, and mortgage companies have loan officers that specialize in construction loans, meaning they’ll have the necessary expertise to walk you through the process. Given their complexity, you don’t want to work with a loan officer who has no experience with construction projects. 

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Advantages of a pursuing a new construction loan in Arizona

In a tight housing market, it would be a miracle to find a home that perfectly fits what you’re looking for. At the same time, finding the money and team you’ll need to build a new house feels daunting. That’s where Arizona construction loans come in. Once you complete your loan application and receive approval from a loan officer, lenders will lend you the money to build the house and help you through the process. Construction loans typically last for only 12 to 18 months. Once construction is complete, they’re usually converted to a regular mortgage and incorporated in your monthly payments.

Construction loans cover the cost of:

  • The land
  • Permits and fees
  • Labor and materials
  • Closing costs

Some lenders will cover additional costs. 

Construction loans can also finance renovations to the home you already have. Maybe you need a larger home because your family is growing. It might be a good idea to expand the home you already have. Or, you may decide to buy an older home that’s less expensive using a conventional mortgage. Then, you could use a construction loan to modernize the home.

A benefit of using a construction loan over a home equity loan to renovate your home is that a construction loan’s amount is based on the estimated value of the home after the renovation. A home equity loan or a home equity line of credit is based on the current equity of your home. This means the construction loan should allow more funding than their home equity cousins.

If you’re thinking about a construction loan in Arizona, it’s a good idea to contact a lender that had special expertise with construction loans. They can help you understand the many steps involved in a construction loan. There are many different loan programs available, each with their own loan process, credit approval requirements, and loan rates. Do research and get information from a few places.

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5 Best Arizona Construction Loans

1. US Bank

US Bank is a large lender with a solid construction loan option. They can’t work with owner-builder construction loans, investment property, or manufactured homes, but if you fall outside of that category (e.g. a primary residence or a second home), then you may like the options. Rather than trying to build your dream home from start to finish, getting a loan for construction costs could speed up your timeline and add significant value to your home.

We reached out directly to US Bank to get details on their program and this is what we heard back:

  • 720 credit score required
  • 10% down up to $750,000
  • 20% down up to $1.5 million 
  • 25% down up to $2 million
  • Loans up to $10 million are available 
  • Primary residence and Second homes only
  • May use lot purchase as a down payment
  • Major renovation loans are available
  • 12-24 month Build periods are available 
  • 30 year fixed One-Time-Close or ARM (5/1, 7/1 & 10/1)
  • One-time closing automatically converts to permanent financing at the end of construction
  • Interest-only payments during construction
  • No prepayment penalty
  • No Spec or Investment Builds
  • No Pre Starts

When you’re ready to connect with a loan officer, use our form to quickly match with construction loan programs based on your specific circumstances.

2. Wintrust Mortgage

Wintrust Mortgage is one of the top 20 bank-owned retail mortgage originators in the country that originates in excess of $4 billion in loans annually in all 50 states. 

Recently we asked Wintrust Mortgage to provide us with details on their construction loan and this is what they said:

  • One-Time Closing. Only pay the closing cost once
  • Lock in your rate upfront and avoid interest rate risk
  • FHA, VA, and Conventional options
  • 0% Down up to $822,375 (VA ONLY)
  • 3.5% Down up to FHA County Limits ($356,362-822,375) 
  • 10% Down on Second homes
  • FICO 680+
  • Loans must include building no Lot/Land Loans 
  • Maximum of 10-acres per build site
  • Stick Built and Modular Homes ONLY
  • NO log homes or metal homes (barndominium)
  • Tear Down and Rebuilds do qualify
  • No self-build or owner builders. The builder must be approved. 
  • Does Not allow ADUs (Accessory Dwelling Unit – Granny Flat/Garage Conversions/Basement)
  • Now lending in all 50 States

When you’re ready to connect with a loan officer, use our form to quickly match with construction loan programs based on your specific circumstances.

3. Washington Federal Bank

Washington Federal Bank (WaFd) has an Arizona construction loan product and partners with Built to streamline the draws, inspections and other aspects of building a new home.

We reached out to WaFd to see what details we could learn about their construction loan product. See below to learn more:

  • Washington Federal keeps your loan, making it a portfolio product. That incentivizes them to pay attention to the process.
  • They believe they have competitive rates worth considering with other lenders.
  • Online application process to get you going on the process.
  • Free ebook that can walk you through the entire process of building a home.
  • Up to $600 savings on closing costs if you open up a checking account (terms and conditions apply)

When you’re ready to connect with a loan officer, use our form to quickly match with construction loan programs based on your specific circumstances.

4. Arizona Federal Credit Union

If you’re interested in working with a credit union for a construction loan, consider checking out the product offered by the Arizona Federal Credit Union.

We reached out to Arizona Federal to learn more about their customized construction loan. program. Here are the highlights:

  • One-time close
  • Adjustable rate loans with an initial fixed rate period of up to 10 years.
  • Local decision making and draw disbursement approval.
  • Can help with lot loans if you’ve found property but aren’t ready for construction.
  • Also has a renovation/tear down loan product if you’ve found the right property but want to tear down the house.

When you’re ready to connect with a loan officer, use our form to quickly match with construction loan programs based on your specific circumstances.

5. National Bank of Arizona

If you’re interested in a one-time close construction loan, the National Bank of Arizona has an online process advertising your ability to save on closing costs by having a one-time close for primary or secondary homes.

We contacted the National Bank of Arizona to verify a few details about their construction loan offering. Here’s what we discovered:

  • One-time close
  • Loan amounts up to $5,000,000
  • Rate locked prior to close
  • Up to 24 months for construction
  • Adjustable rate mortgages offered
  • Available for remodeling projects

When you’re ready to connect with a loan officer, use our form to quickly match with construction loan programs based on your specific circumstances.

Is an Arizona construction loan a good idea for you?

Arizona construction loans usually have a higher interest rate than conventional mortgages. This is because there’s little current collateral to secure the construction loan. The home, which is a large part of the collateral, is still being built. But, during the construction phase, you only have to pay the interest. 

There are two primary types of construction loans — construction to permanent loans and single close loans. Construction to permanent loans require you to pay off the construction loan when the house is complete. Usually, you’ll do this with the proceeds from a conventional mortgage. But what if interest rates are higher when you convert to a conventional mortgage? You’ll be stuck with the higher rates.

Single close construction loans automatically convert to a conventional mortgage when the home is complete. There’s no need to qualify for a new mortgage. The interest rates are a little higher because the bank is taking on the interest rate risk, but this may be what you want if you feel the economy is uncertain. If rates go down, you can always pursue a refinancing later.

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Joshua Holt is a licensed mortgage loan originator (NMLS #2306824) and founder of Biglaw Investor. His mortgage expertise lies in the areas of professional mortgage loans, particularly for lawyers, doctors and other high-income professionals. Prior to Biglaw Investor, Josh practiced private equity mergers & acquisition law for one of the largest law firms in the country.

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