Complete Construction Loan Guide
Written by Onias Derilus, Mortgage Capital · NMLS# 1859012 · Florida licensed mortgage broker
A construction loan finances the building of a new home, releasing money in stages as work is completed. In Florida's active new-build market, construction financing covers everything from a custom home on your lot to a major teardown-and-rebuild.
This guide explains construction-to-permanent loans, draw schedules, and how to qualify. Mortgage Capital, NMLS# 1859012, structures construction financing across Florida.
How construction loans work
A construction loan funds the build through a series of draws tied to completed milestones, such as the foundation, framing, and finishes. During construction you typically pay interest only on the money drawn so far.
The most popular structure is construction-to-permanent, which converts to a standard mortgage when the home is finished, with a single closing and one set of fees.
Construction-to-permanent versus stand-alone
A construction-to-permanent loan combines the build and the long-term mortgage into one closing, locking your terms up front and saving a second round of costs. A stand-alone construction loan is paid off by a separate mortgage at completion.
For most Florida buyers, the single-close construction-to-permanent loan is simpler and cheaper.
Down payment and qualifying
Construction loans generally require more down than a standard purchase, often 10% to 20%, and lenders scrutinize the builder, plans, and budget. Your income, credit, and reserves are underwritten as with any mortgage.
The lender approves both you and the project, so a licensed, reputable Florida builder and a complete budget are essential.
The draw schedule and inspections
Funds release on a draw schedule as construction reaches each stage, verified by inspections. This protects you and the lender by tying money to actual progress.
Contingency funds are built in for overruns, and you should keep a cash cushion for change orders and Florida-specific costs like impact fees.
Converting to permanent financing
When the home passes its final inspection and receives a certificate of occupancy, a construction-to-permanent loan converts to your chosen mortgage, whether fixed or adjustable, without a second closing.
At that point your interest-only construction payments become regular principal-and-interest payments.
Complete Construction Loan Guide: step by step
Frequently asked questions
What is a construction loan?
A loan that finances building a home, releasing money in stages as work is completed, often interest-only during construction.
What is construction-to-permanent financing?
A single-close loan that funds the build and converts to a long-term mortgage at completion, saving a second set of closing costs.
How much down do I need for a construction loan?
Usually 10% to 20%, with lenders also reviewing the builder, plans, and budget closely.
How do construction draws work?
Funds release at milestones like foundation and framing, verified by inspections, so money matches actual progress.
Do I make payments during construction?
Typically interest-only payments on the amount drawn so far, until the loan converts to permanent financing.
What happens if costs run over?
Loans include a contingency, and you should keep a cash cushion for change orders and Florida fees.
When does the loan become a regular mortgage?
At completion, once the home passes final inspection and receives a certificate of occupancy.
Can I use a construction loan for a major renovation?
A renovation loan is usually the better fit for remodels. Construction loans are designed for ground-up builds.