How to Finance a New Construction Home in Florida

At some point in life, everyone wishes to have their own cozy and ideal home to create unforgettable moments. Luckily, today there are countless options available for buying a house, from brand-new construction to pre-existing houses.

For some people, a well-designed house adapted to most tastes is more than enough, but for others, creating a home from scratch is the only way to fulfill their dreams.

Even though finding a new home requires more effort, financial planning, and decision-making, the result is always rewarding.

Buying a new home is a life-changing and huge responsibility that not everyone can handle at once. And for those cases, if you want to finance new construction, this might be the first step toward making your dream a reality. But this requires you to be informed about construction loans and how they work.

In this blog, we will provide you with everything you need to know about financing new home construction, as well as other key considerations to make before making a final purchase.

Key Points

• Choose between a one-time close or a two-close construction loan.
• Expect to make interest-only payments during the construction period.
• Most lenders require good credit and a down payment of 10–20%.
• Budget for inspection fees, permits, and appraisals.
• Typical build time runs 6–12 months before converting to a mortgage.
• Local experts at Rivington in DeBary can connect you with trusted lenders and builders.

H2: What Is the Purpose of a Construction Loan?

Construction loans are typically short-term, adjustable-rate mortgages used to cover the cost of building a new home. These loans typically begin with interest-only payments and convert to a standard mortgage once the home is completed.

H3: How Do Construction Loans Work?

Here’s what the typical construction loan process looks like:

1. Pre-qualify and pick your builder/floorplan. Get pre-approved and choose a trusted, approved builder.
2. Submit plans, budget, and permits; appraisal & underwriting. The lender reviews your documents and determines loan terms.
3. Funds go out in draws after inspections. Money is released in stages as work is completed and verified.
4. Interest-only payments during construction. You’ll only pay interest while the home is being built.
5. Convert to a permanent mortgage at completion. Once construction is complete, your loan will transition into a traditional mortgage.

Is It Hard to Get a Loan to Build a House?

Getting approved for a construction loan can feel complex, but it’s manageable with preparation. Lenders mainly focus on your finances, the builder’s credentials, and the project details.

Key factors they review include:

• Credit score: Typically 680 or higher.
• Down payment and reserves: Expect at least 10–20% down.
• Builder approval: Lenders often require working with a licensed, vetted builder.

If your paperwork is ready and the builder has been approved, this process is very manageable.

What Type of Loan is Best for Construction?

Construction loans are available in two primary varieties: short-term and long-term.

Short-term construction loans are typically used to cover the cost of building the home and any other immediate expenses, such as purchasing land or materials.

At the end of the construction period, borrowers can convert the loan into a traditional mortgage.

Long-term construction loans are more complicated and typically require borrowers to make interest payments during construction.

Which one you choose for your project depends on how much money you have available, the location of the house, and how long it will take to build it.

Choosing Between One-Time Close and Two-Close Loans

When financing a new build, you’ll often choose between two types of construction-to-permanent loans:

One-Time Close (Construction-to-Perm):

This combines your construction and mortgage loans into a single loan. You apply once, close once, and save on closing costs. The interest rate is typically locked before construction starts, offering predictability.

Two-Close (Construction-Only):

This separates the construction and permanent mortgages. You’ll close once for the construction phase, then again for the permanent mortgage after the home is complete. This can offer flexibility if rates drop, but may include double closing costs and more paperwork.

For most homebuyers, a one-time close loan is simpler and cost-effective, but your lender can help you evaluate both.

How to Finance a New Home Construction

1. Educate Yourself on the Available Options

Before applying for a loan, it is essential to understand how construction loans work and the various loan options available.

2. Understand Your Finances and Credit Score

Before applying for a construction loan, ensure you understand your finances and how they affect your credit score.

3. Prepare All Necessary Documents

When applying for any type of loan, it is important to have all necessary paperwork and documents in order. For a construction loan, this includes detailed plans for home building and how much it will cost.

4. Consult with a Professional Realtor

If you need help with how to proceed or how much money you can borrow, it’s best to consult professional realtors or financial advisers who can help you evaluate your finances.

For those seeking comfort and convenience, discover Rivington in DeBary, FL, a master-planned community designed for modern living. Our professionals can guide you through every step of the financing and building process.

FAQs

How long does it take to build a new construction home in Florida?

Most builds take between six and twelve months, depending on design complexity and weather conditions.

What is the minimum credit score for a construction loan?

Lenders typically require a credit score of around 680 or higher to offer favorable terms.

Can I use a construction loan to purchase land as well?

Many construction loans include land purchase costs as part of the total loan amount.

Sources: Consumer Financial Protection Bureau, Fannie Mae, Freddie Mac PMMS.