Accessing USDA Construction Loans in Arizona

Buying or building a home in Arizona can be expensive, but USDA construction loans offer an affordable financing option for rural homebuyers. As part of the Single Family Housing Program, the USDA provides construction loans to help low- and moderate-income families achieve homeownership in rural areas.

What is a USDA Construction Loan?

A USDA construction loan helps cover the costs of building a new home in an eligible rural area. With a construction loan, the funds are disbursed over the course of construction as work is completed. This helps homebuyers pay the builder incrementally rather than all at once.

The USDA offers both direct and guaranteed construction loans. With a direct loan, you borrow directly from the USDA. Guaranteed loans are provided by private lenders but backed by the USDA.

USDA Construction Loan Benefits

USDA construction loans offer several advantages for rural homebuyers in Arizona

• Low interest rates – USDA loans typically have below market interest rates, making the financing more affordable. Rates on direct loans are set by the agency and guaranteed loan rates are negotiated with private lenders.

• Low or no down payment – The USDA requires no down payment on direct loans. Guaranteed loans allow down payments as low as 1%. This makes it easier for buyers to qualify and reduces upfront costs.

• Flexible credit guidelines – The USDA has more flexible credit standards than conventional loans. They consider factors besides credit scores and debt-to-income ratios when approving borrowers.

• No mortgage insurance – Mortgage insurance protects the lender if you default, but it adds to the cost of a loan. USDA loans don’t require mortgage insurance.

USDA Construction Loan Requirements

To qualify for a USDA construction loan in Arizona, you must meet certain eligibility criteria:

• Your property must be located in a designated rural area. The USDA has an eligibility map where you can check addresses.

• Your household income must be within the program limits set for your county and family size. These range from low-income at 50-80% of the median to moderate-income up to 115% of the median.

• You must demonstrate creditworthiness and repayment ability based on your finances and debts.

• The home must be a primary residence and meet all local building codes. Manufactured and modular homes may be eligible if built to agency standards.

• Homebuyer education is required for first-time buyers. The USDA offers a free online course.

How to Apply for a USDA Construction Loan in Arizona

Follow these steps to get started with a USDA construction loan:

1. Check your eligibility. Make sure your location and income qualify before completing an application.

2. Find a lender. Research USDA approved lenders in your area of Arizona. Ask about their construction loan terms and rates.

3. Get pre-qualified. Work with your lender to assess how much you can borrow based on your finances. This helps you set a homebuilding budget.

4. Select house plans. Have blueprints drawn up for your new home that align with your budget and meet USDA requirements.

5. Apply for the loan. Work with your lender to complete the construction loan application and gather all required documents.

6. Close on the land first. You’ll close on the land purchase first. Then construction funds will be disbursed in stages as building milestones are met.

7. Close on the permanent mortgage. Once construction is complete, you’ll convert the construction loan into a traditional USDA mortgage with monthly principal and interest payments.

The USDA has Rural Development offices across Arizona that can guide you through the application process. You can also contact approved lenders directly to get the ball rolling. With proper planning, USDA construction loans make building your dream home in rural Arizona affordable.

USDA Construction Loans in Arizona

The USDA provides construction financing in rural communities across Arizona. Here are some key details on accessing USDA construction loans in the state:

• Eligible areas include non-urban cities, towns, and census tracts with populations below 35,000. Click here to check your address.

• Income limits vary by county and family size. For example, the moderate-income threshold for a 4-person household in Yuma County is currently $60,900.

• Construction loans can be used to build a home on owned land or land being purchased with the financing. The land purchase closes first.

• Manufactured homes are eligible if permanently affixed to a foundation and built to USDA specifications.

• The USDA has a Rural Development office in Phoenix to assist with loan applications. There are also area offices in Flagstaff, Safford, Snowflake, Tucson, and Yuma.

• Applicants work with USDA approved lenders who submit the construction loan request and service the mortgage. Click here for a list of lenders.

• The maximum loan amount may not exceed the appraised value. Loan terms are typically 30 years based on your repayment ability.

The USDA helped over 1,800 Arizona families finance new homes last year. Construction loans make up a portion of these purchases. If you’re looking to build in a rural Arizona community, reach out to a USDA approved lender to learn more about the program’s construction financing options.