Florida Construction LoanA two time close construction to perm loan to build the home you really want.
Florida Construction Loan Breakdown
Our construction to perm Florida construction loan can be used in conjunction with FHA, VA financing, and conventional financing. It is a two time close product, which means first you close on your construction loan, then when the home is complete we do a second closing for what’s called your take-out loan. Its essentially a refinance paying off your construction loan. You can then choose a 15 or 30 year fixed mortgage. Some lenders offer a one time close product which sounds good but the beauty of a two time close product is that your final loan to value ratio is based on a new updated appraisal. That potentially means more built in equity right off the bat! The first appraisal is completed based on the land, blueprints, and breakdown of materials being used to build the home. This appraisal is an effective way to get an idea of whether or not the home you are building will be as valuable as the cost, but oftentimes when the second appraisal is completed it can reflect more value than the initial appraisal. This can happen both as a result of the appraiser being able to develop better comparable sales and or participating in appreciation during the construction time frame.
For example you could begin the process with 10% down on your construction loan and the plan of using conventional financing. Then when the home is complete your value could be more than initially appraised. With enough appreciation your loan could be 80% of the value or lower, eliminating the need for private mortgage insurance. This is just one possible benefit of a two time close Florida construction loan. Additionally it gives more flexibility for changes than a one time close product. If something is going to cost more, or you want something added that cost more, a two time close construction loan allows for changes that could not be done with a one time close product.
Minimum Credit Score, DTI Limits and Other Restrictions
Our Florida new construction loan is for well qualified borrower and requires a 680 credit score whichever type of end financing you use, FHA, VA, or conventional. The maximum backend debt ratios is 45%, that means your total monthly debt, including your new proposed home payment can not exceed 45% of your monthly income. Additionally the borrower will be required to have 2 months reserves in savings of what their total mortgage payment will be after closing. If your credit score is just below 680 and you have the funds to work with please still reach out to us so we can help guide you to where you need to be. This construction loan product is for primary residences only. Additionally the contract between you and your builder can not be cost plus, it must be fixed!
Do I Need to Own My Land First?
You do not need to have land already paid for to use our Florida construction loan. It’s very possible to have your plans ready to go and your builder picked out as you shop for the land you want to build on. We can issue you a pre-approval letter to buy the land, from there we can get your loan through underwriting, order your appraisal, and then at closing the first draw of your construction loan would go towards the purchase of the land. However if you do own the land already, we can use the equity of your land to go towards the down payment and closing costs of your construction loan. Even if you have a loan on the land that you are still paying for we can use the equity of your land. The value of the land would be based on the appraised value if owned for more than 12 months. If you purchased the land within the last 12 months the value of your land would be based on the amount it was purchased for.
Can I Use Any Builder?
Your builder must be approved through our construction department. We look at experience, have they only built a home or two? It might be difficult for them to be approved unless we can show more experience under another general contractor. With our Florida construction loan the general contractor must licensed and insured. We will provide a builder registration form that can then be submitted along with accompanying docs for approval. You will use one general contractor to provide a contract for all the work including site prep. We do not allow for owner builds, you must used a general contractor. Builder approval can be done as you work on your plans and shop for land to expedite the process! Although it does not take very long to get approval once we have the needed docs.
How Much Down Do I Need?
We allow borrowers to finance up to 90% of the cost of their build and land for the construction loan. So in essence you need 10% down on a new lot and build. However if you have equity in your land it can be applied to the down payment required for the construction loan. The 90% loan to value max is applied even if you are using FHA or VA financing. In some cases exceptions are allowed to this max, call for details on that. Your end loan or the take out loan can be up to 96.5% of the value with FHA financing or 100% with VA financing. This can be beneficial when financing in any closing costs for the second closing or take out loan.
What Do I Need to Get Started?
First of all we will need a full loan application and to check credit, to get started get pre-approved. From there you need to choose a builder and we can submit them for approval. Then we need to have your blue prints, and the cost of materials breakdown. If you have land already you’re pretty much there because the builder can then give you a bid and then a contract for the build. If you don’t have land you would need to find a property and get it under contract, then a builder can provide a contract and correct bid based on any site prep needed on the particular lot you have found. With a contract (no cost plus contracts), blueprints, and cost for materials breakdown we can then disclose the construction loan to you. After disclosures are signed we can order the appraisal and bring you through the underwriting process.
Florida Construction Loan Step By Step
So you have your builder picked out. They have been approved, you own your land, or have your land picked out and under contract. Next, the appraisal is ordered using the blue prints and schedule of materials to be used. The underwriting process then proceeds like any other loan, verifying income and assets. With a completed appraisal and an underwriting approval you can then close on your construction loan. At closing its typical for the first draw to go towards site prep and or land that’s under contract to be purchased. From there as the builder makes progress in the construction of your home, inspections will be done periodically to approve further draws. Built into the closing costs of your close is 6 inspections for 6 draws. If more are needed that’s fine too. Interest will be paid only on the amount that has been drawn during the construction process. This can be paid out of pocket or pre-financed into the loan so that you don’t have to worry about payments during construction.
Additionally, we increase the total cost of your build by 10% as a reserve fund for overages. Once the home is complete and the certificate of occupancy is issued and all draws are finished, any remaining funds from your 10% contingency would then be applied to principal. From there its time for your second and final closing. This is considered a rate term refinance paying off your construction loan and then going into a fixed 30, 20, or 15 year mortgage. This can be FHA financing up to 96.5% of the value, it can VA financing up to 100% of the value, and of course conventional financing and its various tiers that include or don’t include PMI.
Frequently Asked Construction Loan Questions:
- Can I own a home while I build? Yes, and we can exclude your current housing payment from your debt ratios.
- How quickly must construction start? Ideally as soon as possible but we understand permitting can take time, so a couple of months is a good estimate.
- Can I provide any of my own material or labor? If you are in a qualified profession its possible, but this must be outlined in the contract. The same goes for material.
- What’s my rate during construction? Your rate is based off of your credit score and loan to value. It is fixed during construction.
- Can I lock my rate in for my take-out loan now? We do have long term rate locks available.
- Can a builder pay concessions for closing costs? Yes they can.