Building a custom home in Florida means stacking together a construction loan, a permanent mortgage, and a builder relationship, all before a single wall goes up. This guide walks through the construction-to-permanent loan process from initial pre-qualification through the day your loan converts to a standard mortgage payment. Before you start, gather a builder contract or bid, lot information or a purchase contract for the land, and a rough budget covering land, build costs, and a contingency cushion.
Step 1: Get Pre-Qualified With a Soft Credit Pull
Before you talk to a single builder or lot owner, get a soft-pull mortgage pre-approval. A soft credit pull mortgage pre-approval checks your credit profile without generating a hard inquiry, meaning your score doesn’t take a hit while you shop around. This matters more in construction lending than in a typical purchase, because you’ll likely be comparing multiple builders, lots, and financing scenarios before committing to anything.
Florida’s lack of a state income tax works in your favor here. Because there’s no state withholding reducing your paycheck, your take-home pay is higher relative to gross income than it would be in most other states, which improves the debt-to-income ratio underwriters use to qualify you. For a construction loan, where reserves and contingency funds matter as much as the base qualification, that extra room in your DTI can be the difference between qualifying for the build you want versus scaling back the plans.
Use this stage to build a realistic all-in budget. That means: the lot price (or remaining balance if you already own it), the fixed construction cost from your builder’s bid, a contingency reserve of at least 5-10% for overruns, and closing costs for the construction-to-permanent loan itself. Buyers who skip this step and start negotiating with builders based only on the construction estimate are often surprised later when contingency and closing costs push the total past what they qualified for. Getting the full number in writing from your broker first prevents that.
Step 2: Select Your Lot, Builder, and Check Flood Risk
Your builder needs to be vetted and approved by your broker before the loan can move forward, since the broker is underwriting both the construction phase and the eventual permanent mortgage. Get a fixed-price contract with a detailed draw schedule attached, spelling out exactly which milestones trigger which payments. A vague contract or one that leaves construction costs open-ended will slow down or stall underwriting.
Before you finalize the lot, look up its flood zone designation at the FEMA Map Service Center. Flood zone status affects your insurance premiums, and in some cases your DTI, since flood insurance gets folded into your monthly housing payment once the home is built. It’s worth doing this check even if the lot feels far from the coast.
A common mistake is assuming that inland or rural Florida lots are automatically outside a flood zone. Special flood hazard areas show up well inland, along rivers, canals, and low-lying drainage areas throughout the state, not just near the coast. Buyers who skip the FEMA lookup sometimes find out during underwriting, or worse, after closing, that flood insurance is required, which changes the monthly payment they budgeted for. Checking msc.fema.gov before you sign anything on the lot avoids that surprise entirely.
Step 3: Apply for the Single-Close Construction-to-Permanent Loan
A single-close construction-to-permanent loan combines the construction financing and the permanent mortgage into one loan with one closing. Once the home is finished, it converts automatically to a standard principal-and-interest mortgage, no second application, no second closing, no second round of closing costs. A two-close construction loan, by contrast, requires a separate refinance into permanent financing once the build is done, which means qualifying twice, paying closing costs twice, and exposing yourself to rate movement between the two closings. Most Florida buyers building a primary residence prefer the single-close structure for that reason.
If you’re using down payment assistance, two Florida Housing programs come up often: FL Assist, which provides $10,000 as a 0% deferred second mortgage, and FL HLP, which provides $10,000 amortizing over 15 years at 3%. These figures should be confirmed as current with Florida Housing before you apply, since DPA program terms and funding availability change.
DPA isn’t automatically the better deal, though. Programs like these often carry a slightly higher rate on the first mortgage in exchange for the assistance funds. Here’s a worked example using three variables: the rate premium, the DPA amount, and how long you plan to stay in the home.
Suppose using FL Assist adds 0.375% to your rate on a $350,000 loan. That’s roughly $60 more per month than the same loan without the DPA rate bump. Against a $10,000 deferred assistance amount, the breakeven point is about 166 months, or nearly 14 years, of ownership before the extra rate cost outweighs the assistance received. If you plan to stay in the home 20+ years, the $10,000 upfront is worth the rate premium. If you expect to sell or refinance within 5-7 years, the deferred DPA balance due at sale may cost you more than it saved. Run this math with your broker using your actual rate quote before choosing a DPA program.
Step 4: Complete Underwriting and the As-Completed Appraisal
Construction loan underwriting relies on an as-completed appraisal, meaning the appraiser values the home based on the approved building plans and specifications, not the current state of the dirt. This lets the loan amount reflect the home’s finished value rather than the empty lot’s value, but it also means the appraiser needs complete, accurate plans to work from.
Underwriting for this loan type typically requires:
- The signed builder contract with a detailed draw schedule
- Full building plans and specifications
- Copies of permits, or proof they’re in process with the local building department
- Proof of funds covering your contingency reserve, separate from your down payment and closing costs
One mistake worth avoiding entirely: going into a build without a contingency reserve. Construction costs rarely land exactly on budget, whether from material price shifts, permitting delays, or change orders during the build. Most brokers require a reserve of 5-10% of the construction budget held in liquid funds, verified before closing, precisely because overruns are common rather than rare. Buyers who show up with just enough for the contract price and nothing extra often find themselves scrambling mid-build, and in some cases unable to finish, if costs move even slightly.
Step 5: Close on Your Construction-to-Permanent Loan
At closing, you’ll want clarity on your rate lock structure. Some construction-to-permanent programs let you lock the permanent rate at the initial closing, before construction even begins, while others only lock the rate once the home converts. If your program offers an early lock, confirm in writing whether that lock extends through the entire build timeline or expires before completion, since builds running longer than expected can leave you exposed to a rate change if the lock lapses.
Once construction is finished and you occupy the home as your primary residence, file for Florida’s homestead exemption under Florida Statute 196.031. This reduces your home’s assessed value by up to $50,000 for property tax purposes, a meaningful reduction on an annual tax bill for a newly built home.
One practical note that trips up new construction buyers: the homestead exemption does not appear on your first property tax bill. It applies starting the tax year following the year you establish residency and file the application, since the county’s tax roll is set based on ownership and occupancy as of January 1 of that year. Budget your first year’s property taxes at the full, non-exempt assessed value, and expect the reduction to show up the following year.
Step 6: Manage the Draw Period
Once the loan closes and construction begins, funds don’t disburse all at once. They release in stages according to the draw schedule tied to your builder contract, with each stage, foundation, framing, roofing, and so on, verified by an inspection before the next draw is released. This protects both you and your broker from paying for work that hasn’t actually been completed.
During this period, you typically pay interest only on the funds that have been drawn so far, not on the full loan amount. As more of the loan disburses across each construction milestone, your interest-only payment grows accordingly, then converts to full principal-and-interest once the home is complete.
The table below compares the single-close structure described in Step 3 against a stand-alone, two-close construction loan.
Since table markup isn’t rendered here, here’s the same comparison as a structured list:
- Rate lock: Single-close often allows locking the permanent rate at initial closing, sometimes with a rate lock extension covering the build. Two-close requires a fresh rate lock at the second closing, with no protection against rate movement during the build.
- Closing costs: Single-close involves one set of closing costs paid once. Two-close involves paying closing costs at the construction closing and again at the permanent refinance.
- Conversion process: Single-close converts automatically upon completion and final inspection, with no new application. Two-close requires a full refinance application, new underwriting, and a second appraisal to move into permanent financing.
Step 7: Convert to Your Permanent Mortgage
The conversion, sometimes called a modification event, happens once the final inspection is passed and the certificate of occupancy is issued. At that point, your single-close loan automatically shifts from interest-only draw payments to a standard principal-and-interest mortgage payment, with no separate closing or new loan application required.
Escrow setup for property taxes and homeowners insurance begins at conversion. If the FEMA flood zone check you ran back in Step 2 flagged the property as a special flood hazard area, flood insurance becomes a required part of that escrow account as well, so confirm your flood policy is bound and ready before conversion paperwork is finalized.
If you used an income-limited down payment assistance program, check HUD’s Area Median Income dataset to confirm your household still falls within your county’s income limit before conversion. AMI figures are set annually and vary by county, and some programs recheck eligibility at this stage, so it’s worth confirming rather than assuming your original qualification still applies.
Duane Buziak, NMLS #1110647, works through each of these stages with Florida borrowers directly, coordinating with builders, appraisers, and Florida Housing on DPA terms so the transition from construction draw to permanent payment happens without surprises.
Frequently Asked Questions
Can I use FL Assist with a construction-to-permanent loan? Yes, FL Assist can be paired with a single-close construction-to-permanent loan in many cases, though eligibility and current terms should be confirmed with Florida Housing and your broker before you apply, since program funding and terms change.
Does a soft credit pull affect my score? No. A soft credit pull mortgage pre-approval does not generate a hard inquiry, so it does not affect your credit score, which makes it useful for shopping builders and lots before committing.
What credit score do I need? Requirements vary by program and by broker, but construction-to-permanent loans generally require a stronger credit profile than a standard purchase loan given the added construction risk. Your broker can confirm your specific standing through a soft-pull check.
How long does the draw period take? Most custom home builds in Florida run six to twelve months, depending on builder capacity, permitting timelines, and material availability, though larger or custom-designed homes can take longer.
Does FL Assist affect the permanent rate? It can. Programs offering down payment assistance sometimes carry a modest rate premium on the first mortgage, which is why running the three-variable breakeven math in Step 3 matters before choosing a DPA program.
What happens if construction costs exceed budget? Overruns are typically covered by your contingency reserve, which is why brokers require one held in reserve at closing. Without that cushion, cost overruns can delay or jeopardize completion.
Is a survey required at closing? Yes, a current survey of the lot is generally required for construction-to-permanent financing, both to confirm boundaries and to support the as-completed appraisal.
Can veterans use Salute Our Soldiers with new construction? Salute Our Soldiers can be used with new construction financing for eligible veteran borrowers, though eligibility and current program terms should be confirmed directly with Florida Housing before applying.
Before You Sign the Final Conversion Paperwork
Confirm your draw schedule, flood zone status, and homestead exemption filing date with your broker before the final conversion so nothing slips through between construction close and permanent financing. Each of these details, the inspection milestones, the FEMA determination from Step 2, and the timing of your Statute 196.031 filing, has a direct effect on your monthly payment and annual tax bill once you’re settled into the finished home.
Your dream home in Florida is closer than you think, let’s turn your homeownership goals into reality with a personalized mortgage solution designed for your unique journey. Get your credit-safe consultation today and discover the loan options that fit your life, backed by trusted guidance every step of the way.