How to Get a Construction Loan



Steps to get a Construction Loan: Getting approval for a construction loan is similar to the process of obtaining a regular hard money loan. The lender will need to approve the construction plan and budget for the project to determine the loan amount.

Find a licensed contractor: Any lender is going to want to know that the contractor in charge of the project has the expertise to complete the project. The builder or contractor will be involved in the draw process. Often times the lender will work directly with the contractor to complete draws and distribute the funds. Just as you would compare multiple existing homes before buying one, it’s wise to compare different builders to find the combination of price and expertise that fits your needs.

Get your documents together: A lender will likely ask for plans, budgets, experience level and any applicable permits. Be sure to have references for your contractor and any necessary proof of their business credentials.

Setting expectations: Having realistic expectations for a construction loan can provide a helpful understanding of how much you will be able to borrow for the project. This can be an important step to avoid paying for plans from an architect or drawing up blueprints for a home that you will not be able to afford.

Hanson Capital is a private money lender offering construction loans across the state of Arizona. Get a private money loan for an investment property purchase, refinance, rehab or new construction in the Arizona area.

How do Construction Loans Work?

Construction loans rates will be comparable to fix and flip and other hard money loans. With a traditional hard money loan the property acts as collateral, it is the same with construction. The land or partial completely structure will be the collateral. If the loan amount desired exceeds the value of the property then some or all of the funds will be held back to be completed in draws or tranches. This simply means funds will be released as work is completed and value is added to the property.

Because construction loans are on such a short timetable and they’re dependent on the completion of the project, you need to provide the lender with a construction timeline, detailed plans and a realistic budget.

Once approved, the borrower will be put on a draft or draw schedule that follows the project’s construction stages, and will typically be expected to make only interest payments during the construction stage. The lender pays out the money in stages as work on the new home progresses.

These draws tend to happen when major milestones are completed — for example, when the foundation is laid or the framing of the house begins. Borrowers are obligated to repay interest on the principal amount of the loan until construction is completed and you can payoff the loan.

While the home is being built, the lender has an appraiser or inspector check the house during the various stages of construction. If approved by the appraiser, the lender makes additional payments to the contractor, known as draws. Expect to have between four and six inspections to monitor the progress.

Depending on the type of construction loan, the borrower might be able to convert the construction loan to a traditional mortgage once the home is built. This is known as a construction-to-permanent loan. If the loan is solely for the construction phase, the borrower might be required to get a separate mortgage designed to pay off the construction loan.

Construction Loans vs. Fix & Flip Loans

Everything you need to know about creative financing

What’s the difference between a fix & flip loan and a construction loan?

What if you’re doing construction as part of the fix & flip process?

Great questions since investment properties that are flipped involve construction and renovation.

The good news is that fix and flip loan funds can be used for all of those needs.

Construction loans are generally used for building entirely new residential or commercial properties or for remodeling an existing building with all-new construction.

What many people don’t know is many of the processes are the same for construction loans and fix and flip loans. A hard money loan provides the benefits of flexibility and speed, both of which are needed in a fix and flip and construction loan scenario.

Tips to Get a Construction Loan

Find a Local, Reliable Lender

Find an experienced lender with a portfolio in your area. Asking other real estate investors in the area about who they recommend is a great place to start. A local hard money lender generally understands real estate trends in your area and can have contractors if you need help. It’s ideal to have a successful financial partner who has identified and financed successful construction loans in the past.

Understand the Terms & Costs

What about construction draws and holdbacks? Can funds be drawn incrementally to cover construction work or are funds not released until work is in progress or complete? Make sure you understand your hard money lender terms and how much you’ll need financially.

Don’t forget about carrying & marketing costs. Have all categories of cost mapped out to show your lender you’re ready to go.

Know Requirements & Timing

What does your local lender look for? What does the schedule look like? At Hanson Capital, we recommend writing out the work to be done, when each stage will begin & end, and an estimate of what each portion will cost. What kind of insurance will you need? Do you need to establish an LLC? etc. Hard money loans vary from lender to lender, so make sure you know what your chosen lender requires.

What is a Hard Money Lender?

Hard money lenders loan money for the purpose of building, renovating and/or selling a property. These lenders serve clients looking for construction loans.

Hard money lenders evaluate the potential of the property and decide on the amount to be loaned based off of their findings.

They gauge the borrower’s potential to successfully complete the property while taking into account the value of the property once it is sold.

How is a Hard Money Lender different?

Traditional banks rarely lend on fix and flip properties. If they lend, it would only be for the amount the property appraised for and would not cover the purchase of the property. Bank loans are based on credit of the borrower and are too slow for many real estate investors.

Hard Money Lenders base the loan amount on the after repair value, which covers the cost of the purchase and remodel. They also fund faster and require less paperwork than a standard loan.

Why Hanson Capital?

Hanson Capital has an extensive knowledge about real estate investing. We look forward to helping you or your clients.

More about us:

  • We are an asset based lender
  • We don’t check credit
  • We don’t ask for personal tax returns
  • We can fund start to finish in 48 hours
  • No excessive underwriting

How to get a Construction Loan?

Getting a construction loan has a specific process. Hanson Capital would love to walk you through that process and see if you’re ready to take this exciting step.

At Hanson Capital, our goal is to get you an answer in as little time as possible so you can take on your project right away. We don’t want you to miss out on a great deal while waiting to hear back from a lender ever again.

More About Construction Loans

Here are answers to some frequently asked questions! Still need support? Head over to our Contact Us page.

Are there higher qualification requirements for construction loans?

There are not high qualifications for a construction loan, the lender just needs to understand your experience level and have a thorough construction plan presented to them.

Can I borrower in an LLC?

Hanson Capital can lend to anyone. Our Construction Loans are available to the following borrowers:

  • LLCs
  • Limited Partnerships, General Partnerships
  • Corporations
  • Individuals

Do construction loans cover the design phase of home construction?

Construction loans will cover the steps to build the house or property. That covers from grading to finishing hardware and appliances. It will not cover furniture.

Besides Arizona, what other states do you lend in?

Hanson Capital currently lends in Arizona, California, Colorado, and Texas.

What are the interest rates for a construction loan?

Hanson Capital offers competitive construction loan rates. All rates are based on the individual property and borrower. Contact us for more details & to schedule a consultation.

What are the top construction loan cities in Arizona?

At Hanson Capital, we work with clients all over Arizona. Here are some of the cities:

  • Chandler, AZ
  • Flagstaff, AZ
  • Gilbert, AZ
  • Glendale, AZ
  • Mesa, AZ
  • Payson, AZ
  • Phoenix, AZ
  • Scottsdale, AZ
  • Tempe, AZ
  • Tucson, AZ