What is a land-and-construction (lot + build) loan in Arizona?

Instead of buying land with one loan and financing the build with another, this product rolls both into one package with a single closing. People call it a lot-plus-construction or single-close construction-to-permanent loan with land included, and it buys your lot and pays to build your home at the same time. During construction you pay interest only, then the loan converts to a standard mortgage once the home is finished. This is the common path in Arizona for people building on a piece of raw or rural land they do not own yet, like a lot in Rio Verde, Cave Creek, or the open desert around Casa Grande.

Below is how the land gets rolled into the loan, what lenders require for raw land, and how the government-backed versions handle rural property.

How the land gets rolled into the loan

A land-and-construction loan finances the lot and the build as one transaction. At closing, the loan pays the seller for the land, and then the construction funds release in stages as your home is built. You do not need a separate land loan first. If you already own the lot, that is different: your land equity usually counts toward your down payment, and the loan only covers the build.

The structure mirrors a standard construction-to-permanent loan. Money releases through a draw schedule tied to construction milestones, and as the CFPB explains, the funds come "in a series of advances as the construction progresses." Federal rules under Regulation Z, Appendix D, govern how interest is disclosed on these multiple-advance loans. You can see the typical stages on our draw schedule glossary entry.

The down payment is figured on the total project cost, land plus build. Most lenders want 20 to 25 percent down, and the land you are buying counts as part of the collateral. On a project with a $200,000 lot and a $600,000 build, that is an $800,000 total, so a 25 percent down payment is $200,000. If you own the land outright, its appraised value can cover much or all of that down payment, which is one of the biggest reasons Arizona buyers acquire the lot first.

What lenders require for the land itself

Lenders scrutinize the land harder than the house on a lot-plus-build loan, because raw land carries its own risks. Before they fund, they want proof the lot can actually support the home you plan to build. That review covers zoning, access, and utilities.

Key things the lender and a smart buyer check:

• Zoning and permits. The lot must be zoned for a single-family home, and your plans must meet the local building code. Editions vary by jurisdiction: Scottsdale uses the 2021 I-codes, Phoenix the 2024 Phoenix Building Construction Code, and unincorporated Maricopa County, which covers Rio Verde, the 2018 I-codes.
• Legal access. The lot needs a legal, recorded way in, a public road or a deeded easement. Landlocked parcels are common in rural Maricopa County and can kill a loan.
• Water and septic. Rural Arizona lots often have no city water or sewer. You may need a private well and a septic system, and the lender wants to know those are feasible before funding. In areas like Rio Verde Foothills, hauled water is a real consideration.
• Soils. Arizona's expansive clay soils can require a deeper or post-tension foundation, which raises cost. A soils report tells you and the lender what the build will actually take.

Raw, undeveloped land is the hardest to finance, because it has no utilities and no improvements. A lot that is already platted with road access and utility stubs is easier and cheaper to lend against. The more developed the land, the smoother the loan. Some lenders also cap how much of the total they will lend against the land alone, often around 50 to 65 percent of the lot's value for raw acreage, which is another reason buyers who already own their land have an easier time.

Site costs on rural Arizona land can be substantial and are easy to underestimate. Drilling a well, installing a septic system, running power, and grading a long driveway can add tens of thousands of dollars before the home itself begins. The lender folds these site improvements into the construction budget, so price them realistically. An under-budgeted lot is a common reason a land-and-construction appraisal comes in low.

Government-backed lot-and-build loans for rural land

The USDA and VA both offer construction loans that can include rural land, which fits a lot of Arizona's build-on-your-lot market. These programs lower the down payment and were built for exactly the kind of rural parcels common in Pinal County and the Valley's outer edges.

USDA single-close construction-to-permanent loans are designed for eligible rural areas and offer up to 100 percent financing for households at or below 115 percent of the area median income. The USDA fact sheet describes a loan that "combines the features of a construction loan and a long-term permanent mortgage" with one closing. Because USDA guarantees the loan at closing before construction begins, qualified buyers can sometimes finance the land and the build with little to no money down, which is rare among construction loans. The USDA Single Family Housing Guaranteed Loan Program runs this through approved lenders, who must have experience administering construction loans.

VA construction loans are single-close construction-to-permanent loans for eligible Veterans and service members, with no down payment and funds released through periodic draws. The home must be built by a VA-registered builder. These loans can cover the land and the build together, though the VA notes that lenders offering them "can be difficult to locate," so start your search early.

For lots that do not qualify for USDA or VA, a conventional land-and-construction loan from an Arizona-licensed lender is the standard route, with the 20 to 25 percent down payment described above.

When a lot-plus-build loan makes sense

A land-and-construction loan fits when you have found the lot but do not own it yet, and you want to lock in financing for the land and the home in one step. It saves you a second closing and a second loan approval, and it protects you from having to qualify again for the mortgage after the build.

It works best when the lot is clean and buildable: zoned correctly, with legal access, and with a realistic path to water, septic, and power. The more questions hang over the land, the more the loan can stall, because the lender lends against the finished home on a buildable lot. Do your homework on the parcel before you apply. A soils report, a water feasibility check, and a zoning confirmation up front save weeks later.

Two cases where it fits less well. If you already own your land free and clear, you may not need to roll it in at all; a standard construction loan using your land as the down payment is often simpler. And if you plan to build and sell within a year, the owner-builder route is blocked by Arizona's one-year rule, and most lenders will treat the project as a higher-risk investment build.

Land-and-construction loan terms, down payments, rates, and rural eligibility maps change often and vary by lender and program. Confirm the current terms, your USDA or VA eligibility, and whether your specific lot qualifies with an Arizona-licensed lender before you make an offer on the land.

Building with Jematell Homes

We build the budget line by line so the number you sign is the number you build to. If you are planning a custom home in Scottsdale, Rio Verde, or the greater Phoenix metro, we are happy to walk through your project.

Sources

• CFPB: What is a construction loan?
• USDA Rural Development: Single Close Construction-to-Permanent Financing
• USDA Rural Development: Single Family Housing Guaranteed Loan Program
• VA: VA offers construction loans for Veterans to build their dream homes
• CFPB: Appendix D to Part 1026 (Multiple-Advance Construction Loans)