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Florida Construction Loan Process

Here in Florida we reach a point in life when we design a home, find a builder and attempt to get a mortgage that will pay the construction person, and when it’s done, we move in. The vehicle with which will do the funding of said project is called a “construction loan”.

Thanks to a close friend of my son’s, I spent the day yesterday finding enough about this undertaking to feel I should inform readers of just how simple this process really is.

I found myself back at a nationally known bank/lender known as IndyMac reading over their guidelines and requirements. The following is an overview of what is required to begin the loan process.

Before construction

Construction loans are sometiimes refered to as “story loans”. What this means is, the lender/bank needs to know the story behind the planned construction before they are willing to loan you money.

To begin the process, the borrower needs final plans, blueprints and specifications in addition to a detailed cost breakdown (from the builder/contractor).

Secondly, an Application for Construction Loan is submitted.

The borrower will be encouraged to set a time frame (the shorter the time frame the lower the interest rate during construction) and the process is underway.  The normal time frames offered are between six and twenty four months.

During construction

There are no payments due from the borrower during the construction phase. There are no application fees, draw fees, or inspection fees. 

IndyMac adds about $2000 for closing costs (normal amount), and the title and escrow fees are paid for by the borrower from the borrowers own funds at finalization. 

During the construction phase the interest rate is about 8.0 to 8.5 percent.  No payments are made; however, the interest is added to what funds have been used during construction.

When construction is 95% complete, the borrower may choose the specific loan program (fixed, adjustable, Option Arm etc.) and may then lock in at the prevailing interest rate.

Unlike a mortgage, a construction loan isn’t meant to be around for a long time. If you’re taking out a $100,000 construction loan for six months and you pay an extra 1% on the loan, it costs you an additional $250.

One side note, if the borrower does not own the property to which the home is to be built, the lender will include that amount in the loan. Also, if the borrower has a mortgage on the homesite, the lender will pay that mortgage to zero and include the payoff amount in the new loan.

Hopefully this short overview of the Florida construction loan process will cast some light on a subject that is often avoided so that more persons can build a home and find a construction loan.

By Jim Jump To Comments
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3 Responses to "Florida Construction Loan Process"

    Condo says:

    Often, getting approved for a construction loan at most banks can be tricky. In many cases, two loans are required—one for construction and one for permanent financing. Usually you will have to pay closing costs on both loans, not to mention the extra paperwork, time and hassle involved. But at Alpine Mortgage, we offer a single-close Construction-to-Permanent Loan that combines both construction and permanent financing into one loan. A Construction-to-Permanent Loan allows for a construction period of 6 to 12 months sometimes more. Other options are also available. When your project is complete, the loan simply converts to a permanent mortgage – no extra costs..!You only need to qualify one time which means only having to chase down documentation once compared to the typical process where the customer is qualified, the builder builds the home, then the lender requests documentation all over again to make sure the customer still qualifies. With the CTP loan, having qualified at the beginning of construction, the customer can shop for new furniture, buy a new car, change jobs, whatever they choose because they are already approved and do not need to be approved all over again 6 months to a year later! To help you manage your budget a little easier, you’ll pay only interest on the money you’ve drawn. That means your payments will be less than they will be if you were paying principal, as well.


    Posted on 01/17 at 4:14 AM
    Susan Keating says:

    looking for a construction loan on a property located in Indian River County


    Posted on 06/10 at 1:49 PM
Frank in Brooksville says:

3-21-11, Times have changed. Today it seems to be more complicated and time consuming.


Posted on 03/21 at 12:15 PM

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