Building a custom home in Florida is exciting, but it also comes with a unique financial process compared to buying an existing house. Many luxury homeowners finance their project through a construction-to-permanent loan. If you’ve never built before, it can feel complicated, but once you understand the steps, it’s straightforward. Here’s how construction loans work and what you need to know before starting your dream home.
WHAT IS A CONSTRUCTION LOAN
A construction loan is short-term financing that pays for the cost of building your home. Instead of getting the entire loan amount upfront, the bank releases money in stages (called “draws”) as construction progresses. Once the home is complete, the loan typically converts into a traditional mortgage (that’s the “permanent” part).
Why it matters in Florida: Lenders here are especially focused on approving both the borrower and the builder. Because of hurricanes, specialized insurance, and the size of luxury homes, the bank wants to know your builder is qualified, licensed, and financially stable.
HOW DRAWS WORK DURING CONSTRUCTION
Unlike a standard home purchase where you get one lump sum, construction loans are typically funded in phases, or on builder draw requests based on percentage complete — which often closely mirror the typical construction phases:
At each stage (or draw request), the bank sends an inspector to verify the work before releasing funds. The builder submits a draw request to the bank handling the construction loan, and once approved, funds are released to the builder, who then pays their subcontractors and vendors.
Pro Tip: Choose a builder who is experienced with the draw process. Delays in paperwork or documentation can slow down construction and cost you money in interest.
INTEREST-ONLY PAYMENTS WHILE YOU BUILD
During construction, you typically pay interest only on the amount that’s been drawn. For example, if you’ve only used $250,000 of a $1.5M loan, you only pay interest on $250,000. This is helpful because it keeps your payments lower. Once the home is complete and the loan converts, you begin making full principal + interest mortgage payments.
WHAT THE BANK REQUIRES
Every lender is a little different, but here’s what you can expect to provide:
When the cost of building a luxury home exceeds $2M–$3M, many banks will also require additional reserves or higher equity to feel comfortable financing.
COMMON MISCONCEPTIONS
“I’ll get all the money upfront” — Not true, construction loans are controlled and released in stages to protect both you and the lender.
“The bank manages everything” — The bank checks progress, but you still need a builder who can manage subcontractors, schedules, and budgets day-to-day.
“I can pick any builder I want” — Not always, Lenders must approve your builder, and many prefer those with a proven track record in large custom homes.
CHOOSING THE RIGHT TEAM MATTERS
The construction loan process isn’t just about financing, it’s about the partnership between you, your lender, and your builder. In Central Florida, banks know which builders can handle large-scale projects without surprises. An experienced builder will:
FINAL THOUGHTS
Financing a custom home in Florida is different from buying off-the-shelf, but it doesn’t have to be overwhelming. With the right builder and lender, the process is structured, transparent, and keeps your dream project moving smoothly.
If you’re considering building a custom home in Orlando, Winter Park, Windermere, Lake Nona, or anywhere in Central Florida, our team at Deep Roots Construction works hand-in-hand with local lenders and clients to make the loan process seamless. We’re happy to walk you through what to expect and help you prepare before you apply.
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