In This Guide
- 1.What a construction loan actually is
- 2.Single-close vs. two-close: the decision that matters most
- 3.How the draw schedule works in Arizona
- 4.Rate locks: why they matter more in Arizona than anywhere else
- 5.What you actually need to qualify
- 6.Arizona-specific requirements banks don't mention
- 7.The programs available (and who they're for)
- 8.Common mistakes Arizona borrowers make
- 9.How to get started
What a Construction Loan Actually Is
A construction loan is short-term financing that funds the building of a home. Unlike a regular mortgage — where the bank hands you a lump sum to buy an existing house — a construction loan releases money in stages as work is completed. The lender doesn't hand your builder a check for the full amount on day one. They fund the project in draws tied to verified milestones.
This structure protects both you and the lender. You're not paying interest on $800,000 from the day you break ground. You're paying interest only on what's been drawn — so if $200,000 has been released to the builder, you're making interest-only payments on $200,000, not the full loan amount.
When construction is complete, the loan either converts automatically to a permanent mortgage (single-close) or you refinance into a new mortgage (two-close). Which path you take is the most important decision you'll make in this process.
Single-Close vs. Two-Close: The Decision That Matters Most
Most lenders offer one or the other. Very few offer both. Understanding the difference will save you tens of thousands of dollars — or cost you that much if you pick wrong.
Single-Close (What We Offer)
- One application, one approval, one closing
- Rate locked before you break ground
- Automatically converts to permanent mortgage at completion
- No second appraisal required
- No refinance risk if rates rise during construction
- One set of closing costs
Two-Close (Most Banks)
- Two separate loan applications
- Rate floats during construction — unknown at start
- Must refinance when construction ends
- Second appraisal required at completion
- If rates rise 1–2%, your payment increases significantly
- Two sets of closing costs
In a stable rate environment, the two-close structure is manageable. In a volatile rate environment — which Arizona borrowers have experienced repeatedly over the past decade — it's a serious financial risk. You could start a build expecting a 6.5% permanent rate and finish to find rates at 8%. On a $600,000 mortgage, that's roughly $700 more per month for the life of the loan.
The single-close construction-to-permanent loan eliminates that risk entirely. Your rate is locked before the first shovel hits the ground. What you're quoted is what you pay — regardless of what happens to rates during the 8–12 months of construction.
How the Draw Schedule Works in Arizona
The draw schedule is the roadmap that governs when money is released to your builder. In Arizona, a typical construction loan has 4–6 draws tied to verified milestones. Here's what a standard draw schedule looks like:
Foundation poured and inspected. Footings complete.
Framing complete, roof sheathing on, rough plumbing and electrical roughed in.
HVAC, plumbing, and electrical inspections passed. Drywall hung.
Flooring, cabinetry, fixtures, interior doors installed.
Certificate of Occupancy issued. Final inspection passed.
Before each draw is released, the lender sends an inspector to verify the work is complete and matches the approved plans. This inspection protects you — it ensures you're not paying for work that hasn't been done. In Arizona's fast-moving construction market, where builder schedules can compress or stretch depending on subcontractor availability, having a clear draw schedule keeps everyone accountable.
The builder submits a draw request, the lender orders the inspection, and funds are typically released within 3–5 business days of a passing inspection. During this entire period, you're making interest-only payments on the cumulative amount drawn — not the full loan balance.
Rate Locks: Why They Matter More in Arizona
Arizona's construction market moves fast. A custom home in the Scottsdale Foothills or a new build in Queen Creek can take 10–14 months from permit to Certificate of Occupancy. That's a long time to be exposed to rate risk.
With a single-close construction-to-permanent loan, your rate is locked at closing — before construction begins. The rate you lock is the rate you keep for the life of the permanent mortgage. You're not refinancing at the end. You're not hoping rates cooperate. The number is fixed.
"I had a client building in Marana who locked at 6.75% in early 2023. By the time his home was finished 11 months later, rates had moved to 7.8%. His single-close lock saved him roughly $650 per month compared to what he would have paid with a two-close refinance. Over 30 years, that's over $230,000."
— Matthew Siket, NMLS 442558
Rate lock periods on our Arizona construction loans extend up to 365 days — long enough to cover even the most complex custom builds. Most banks offer 60–90 day locks, which expire before construction is finished, forcing a rate extension (at a cost) or a new lock at current market rates.
What You Actually Need to Qualify
Here are the actual qualification requirements for our Arizona construction loan program — not the generic national guidelines you'll find on most lender websites.
Beyond the numbers, you'll need a signed construction contract with a licensed Arizona builder (or your own ROC license for owner-builder), approved plans and specifications, a construction budget and timeline, and an "as-completed" appraisal — an appraisal of what the finished home will be worth, not what the lot is worth today.
Self-employed borrowers qualify using two years of tax returns. If your income is complex — business ownership, investment income, rental income — that's not a disqualifier. It's a documentation question, and one we work through regularly.
Arizona-Specific Requirements Banks Don't Mention
Arizona has its own set of construction lending nuances that national lenders and generic guides consistently miss. If you're building in this state, these matter.
Arizona ROC License Requirement
Every builder working on a construction loan project must hold a valid Arizona Registrar of Contractors (ROC) license. This is state law, not lender policy. Verify your builder's license at roc.az.gov before signing any contract. An unlicensed builder will kill your loan — and expose you to significant legal and financial risk.
Caliche Soil and the Appraisal Challenge
Much of the Phoenix metro and Tucson basin sits on caliche — a hardened calcium carbonate layer that can add $5,000–$20,000 to foundation costs when it requires blasting or specialized excavation. Lenders who don't know Arizona will underestimate this in the budget. Your construction loan budget needs to account for it, or you'll face a cost overrun before framing begins.
Pima County vs. Maricopa County Permitting Timelines
Permitting timelines vary significantly across Arizona counties. Maricopa County has streamlined its process considerably and many jurisdictions offer express permitting. Pima County (Tucson) can run 6–12 weeks for residential permits. If your construction loan has a 12-month build period, you need to account for permitting time before the clock starts on construction.
HOA and ARC Approval in Master-Planned Communities
If you're building in a master-planned community — Eastmark, Verrado, Trilogy, Estrella Mountain Ranch — your plans must be approved by the Architectural Review Committee before permits are pulled. ARC approval can add 4–8 weeks to your pre-construction timeline. Factor this into your loan timeline or you'll be paying construction loan interest while waiting for HOA sign-off.
Water Source Verification in Rural Areas
Building outside the metro areas — in Wickenburg, Prescott Valley, Rio Verde, or rural Pinal County — often means private well or shared water system rather than municipal water. Lenders require water adequacy testing and documentation before closing. This is a step many borrowers don't anticipate, and it can add 2–4 weeks to the pre-closing process.
The Programs Available — and Who They're For
Not every construction loan program fits every borrower or every project. Here's a clear breakdown of what's available in Arizona and who each program is designed for.
Construction-to-Permanent (Single Close)
View Arizona Construction Loan Options →5% down, up to $3M, 12-month build period, rate locked at closing, automatically converts to 30-year fixed or ARM at completion. This is the flagship program and the right choice for the vast majority of Arizona custom home builds.
Owner-Builder Construction Loan
View Arizona Construction Loan Options →Requires an active Arizona ROC license. Allows you to manage the build yourself, hire your own subs, and potentially save 15–20% on general contractor markup. Not for first-time builders — lenders require demonstrated construction management experience.
Lot Loan + Construction
View Arizona Construction Loan Options →Purchase the lot with a lot loan, then roll into a construction loan when you're ready to build. Useful when you've found the right piece of land but aren't ready to start construction immediately.
Renovation Construction Loan
View Arizona Construction Loan Options →Funds significant renovations — additions, full gut rehabs, ADU construction — using the same draw-based structure as new construction. Based on the as-completed value of the improved property.
Pole Barn / Barndominium / Shouse Loan
View Arizona Construction Loan Options →Most lenders won't touch these. Our program covers pole barns, barndominiums, and shop-houses on permanent foundations in Arizona. Requires standard appraisal comparables — which can be challenging in rural markets but is manageable with the right appraiser.
Common Mistakes Arizona Borrowers Make
Choosing a two-close loan to get a slightly lower initial rate
The rate savings on a two-close construction loan are typically 0.125–0.25%. If rates move 0.5% or more during construction — which happens — you've lost that savings and more. The single-close rate lock is insurance, not a premium.
Underestimating the construction budget
Arizona material and labor costs have risen significantly. If your builder's bid is tight, build in a 10–15% contingency reserve. Cost overruns beyond the approved loan amount come out of your pocket — the lender won't increase the loan mid-construction without a formal modification.
Starting construction before the loan closes
Any work done on the property before loan closing — even clearing brush or grading — can trigger a 'prior start' issue that makes the property uninsurable and the loan unfundable. Don't break ground until you have a signed closing disclosure and funded loan.
Not verifying the builder's ROC license
Arizona has unlicensed contractors operating throughout the state. A single call to roc.az.gov takes 2 minutes and confirms your builder is licensed, bonded, and has no disciplinary history. Skipping this step has cost Arizona borrowers their entire construction budget.
Ignoring the as-completed appraisal
Your loan amount is based on the lesser of the construction cost or the as-completed appraised value. If your custom home costs $1.2M to build but the appraiser values it at $1.05M in the current market, your loan is capped at $1.05M. Work with your lender to review comparable sales before finalizing your plans.
How to Get Started
The first step is a conversation — not an application. Before you pull credit or submit documents, it's worth spending 20 minutes on the phone to confirm your scenario fits the program and understand exactly what you'll need to gather.
Most Arizona construction loan borrowers come in with one of three situations: they've already found land and have a builder lined up, they're still in the planning phase and want to understand their budget, or they've been turned down by a bank and want to know if a credit union program can help. All three are conversations worth having.
Matthew Siket has been originating construction loans in Arizona for over two decades. He knows the local builder market, the county permitting timelines, and the appraisal challenges in every major Arizona market. If you're building in Arizona, this is the call to make.
Ready to Build in Arizona?
Single-close · Rate locked before groundbreak · 5% down · Up to $3M