Construction Loans in Phoenix: How They Work + Free Calculator

Building a new home in the Phoenix Valley involves a different financing process than buying resale — you need a construction loan to cover the build, which then converts to your permanent mortgage. Here's exactly how that process works, what it costs, and how to estimate your numbers before you commit to a lot or builder.

I work with buyers building in Queen Creek, Gilbert, Surprise, Buckeye, San Tan Valley, and throughout the Valley — here's what you need to know.

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How Construction Loans Differ From a Regular Mortgage

When you buy an existing home, you get one loan and one closing. Building new involves an extra phase:

PhaseWhat HappensPayment Type
Construction PhaseFunds released in "draws" as each stage of building is completed and inspectedInterest-only, on funds disbursed so far
ConversionLoan converts to a standard permanent mortgage once construction is completeStandard P&I begins
Permanent PhaseFunctions like any other mortgage — fixed or adjustable rateFull PITI payment

Types of Construction Loans

Most Common

One-Time-Close Construction Loan

A single loan and single closing covers both the construction phase and the permanent mortgage. Your rate is typically locked at the start. Simplifies the process significantly — one approval, one set of closing costs.

Less Common

Two-Time-Close Construction Loan

A separate construction loan is used during the build, then you refinance into a permanent mortgage once complete — two closings, two sets of costs. Rate isn't locked until the second closing.

Veterans

VA Construction Loan

Eligible veterans can build with zero down payment using a VA one-time-close construction loan — the same VA benefits (no PMI, competitive rates) apply to new construction.

Lower Credit/Down

FHA Construction Loan

FHA one-time-close construction loans allow down payments as low as 3.5%, with the same FHA credit flexibility (580+) extended to new builds.

Construction Loan Requirements

RequirementTypical StandardNotes
Credit Score680+ (conventional construction)VA/FHA may allow lower
Down Payment20% of total project costVA: 0% / FHA: 3.5% with one-time-close
Debt-to-IncomeUnder 45%Same as standard mortgage qualification
Approved BuilderRequiredLender must approve the builder before closing
Detailed Plans & Cost BreakdownRequiredLender reviews full specs and itemized costs
Land OwnershipOwned outright or being purchased as part of loanExisting land equity can count toward down payment

How Draw Schedules Work

Instead of receiving all loan funds upfront, your builder receives payments in stages as work is completed — called "draws." A typical draw schedule might look like:

  1. Foundation/site work complete — first draw released
  2. Framing complete — second draw
  3. Mechanical/electrical/plumbing rough-in complete — third draw
  4. Drywall and interior finishes underway — fourth draw
  5. Final completion and inspection — final draw

Before each draw is released, an inspector verifies the work matches what's being paid for. You pay interest only on funds that have actually been disbursed — not the full loan amount — during the construction phase.

Interest-Only Payments During Construction: If your total project is $450,000 but only $150,000 has been drawn so far, you're only paying interest on $150,000 during that period — not the full $450,000. This keeps your out-of-pocket costs manageable while the home is being built.

Step-by-Step: The Construction Loan Process in Phoenix

1

Choose Your Lot and Builder

Your lender will need to approve your builder before closing. If you're building with a major Valley builder (common in Queen Creek, Surprise, Buckeye, San Tan Valley), this is usually straightforward — many builders have lenders they work with regularly, though you're not required to use them.

2

Get Pre-Approved

Same documentation as a standard mortgage — income, assets, credit — plus your total project budget. Pre-approval establishes your maximum project cost before you finalize plans.

3

Submit Plans and Cost Breakdown

Your lender reviews detailed building plans and an itemized cost breakdown from your builder — this becomes the basis for your draw schedule.

4

Close on the Construction Loan

With a one-time-close loan, this is your only closing. Your rate is typically locked at this point for both the construction and permanent phases.

5

Draws Released as Building Progresses

Funds are released in stages as inspections confirm completed work, as described above. You make interest-only payments on disbursed funds during this phase.

6

Final Inspection and Conversion

Once construction is complete and passes final inspection, your loan converts to a standard permanent mortgage. With one-time-close, this happens automatically with no second closing.

Run the Numbers — Free Calculators

Construction Loan Calculator Estimate draw payments and your converted permanent mortgage
Debt-to-Income Calculator Check if your income supports the project cost
2-1 Buydown Calculator See how a temporary buydown affects payments after conversion
VA Benefit Calculator For veterans building with zero down
Rent vs. Buy Calculator Compare building new vs. continuing to rent
Mortgage Amortization Calculator See your full payment schedule after conversion

Builder Incentives — What to Watch For

Many Valley builders offer incentives like rate buydowns or closing cost credits through their preferred lenders. These can be genuinely valuable — but always get an independent quote too.

⚠️ Compare Builder Lender Offers Independently: A builder incentive might be priced into the home's purchase price, or come with less favorable long-term terms than they appear. Get a quote from an independent broker alongside any builder-lender offer so you can compare the true total cost — not just the headline incentive.

Frequently Asked Questions

How much down payment do I need for a construction loan in Phoenix? Conventional construction loans typically require 20% of the total project cost (land plus construction). VA construction loans allow 0% down for eligible veterans, and FHA one-time-close construction loans allow as little as 3.5% down.
Can I use land I already own for a construction loan? Yes. If you own your lot outright, its value can count toward your down payment and equity in the project, potentially reducing or eliminating additional cash needed at closing.
What is a one-time-close construction loan? A one-time-close construction loan combines the construction financing and the permanent mortgage into a single loan with a single closing. Your rate is typically locked from the start, and the loan automatically converts to a standard mortgage once construction is complete — avoiding a second closing and second set of closing costs.
How do payments work during construction? During the construction phase, you make interest-only payments based on the funds that have actually been disbursed (drawn) so far — not the full loan amount. As each phase of construction is completed and inspected, the next draw is released and your interest-only payment adjusts accordingly.
Can veterans build a new home with a VA loan? Yes. VA one-time-close construction loans allow eligible veterans and active-duty service members to build with zero down payment, no PMI, and the same competitive rates available on VA purchase loans.
What credit score do I need for a construction loan? Conventional construction loans typically require a credit score of 680 or higher. VA construction loans have no set minimum (though most lenders look for 580-620+), and FHA construction loans can work with scores as low as 580.

Ready to Run Your Construction Loan Numbers?

Whether you're building in Queen Creek, Gilbert, Surprise, or Buckeye, I'll walk you through the one-time-close process, compare your options against builder incentives, and get you pre-approved for your project.

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