Can You Use a Conventional Loan on New Construction in South Florida?

Financing a newly built home often raises questions for buyers—especially when it comes to using a conventional loan. While many assume that new construction automatically requires a specialized loan product, such as a construction-to-permanent loan or builder financing, conventional loans can in fact be used for new construction purchases under the right circumstances. In South Florida, where demand for new housing continues to climb amid population growth and limited resale inventory, understanding how this financing option fits into your homebuying strategy can give you a valuable advantage.

A conventional loan is any mortgage that is not insured or guaranteed by the federal government. These loans are backed by private lenders and typically conform to guidelines set by Fannie Mae and Freddie Mac. When it comes to new construction, buyers using a conventional loan will either purchase a move-in-ready home from a builder or finance the construction process from the ground up. Each route has different eligibility requirements and considerations.

Buying a Builder-Spec Home with a Conventional Loan

The most straightforward way to use a conventional loan for new construction is by purchasing a builder-spec, or move-in-ready, home. These properties are built by developers and put on the market either at the construction phase or after completion. Because the home already exists or is near completion, lenders treat the loan application process much like they would with an existing resale property.

In South Florida, many builders in areas like West Palm Beach, Boca Raton, and Fort Lauderdale offer spec homes with conventional loan compatibility in mind. These homes are often listed on the MLS and can be financed through any lender of the buyer’s choice. In such cases, the buyer typically needs to meet standard conventional loan criteria, such as a qualifying credit score, a sufficient down payment, and acceptable debt-to-income (DTI) ratios.

Lenders may require a final certificate of occupancy (CO) before closing, which ensures the home complies with all local building codes and is habitable. Once the CO is issued and the builder provides the necessary documentation, the loan can proceed to closing. This process tends to be more streamlined than other types of new construction financing.

Financing a To-Be-Built Home

When buyers want to customize a home from the ground up, the process becomes more complex. Traditional conventional loans are not typically structured to fund the construction phase itself. In these scenarios, buyers often start with a construction loan, which covers the cost of building, and then refinance into a conventional loan once the project is complete.

However, some lenders offer “construction-to-permanent” loans, also known as one-time close loans, that begin as construction loans and convert to conventional mortgages at completion. These loans allow the borrower to lock in interest rates early and avoid multiple closings, which can reduce fees and simplify the timeline.

In South Florida, some lenders are more familiar with this structure and may work closely with both the borrower and builder to ensure that documentation and draw schedules align with local building regulations. Premier Mortgage Associates, for instance, partners with trusted local builders and has experience navigating the requirements of new construction projects in the region.

Qualifying for a Construction-to-Permanent Loan

If you plan to finance both the construction and long-term mortgage through a single loan, the qualification process is more involved. Lenders will assess not only your financial profile but also the project’s feasibility, the builder’s credentials, and the appraised value of the finished home.

Documentation requirements for construction-to-permanent loans typically include:

• Detailed architectural plans
• A signed construction contract
• A construction budget or cost breakdown
• The builder’s license and proof of insurance
• Permits and zoning compliance verification

The lender will also conduct a preliminary appraisal based on the projected value of the completed home. If the appraisal supports the loan amount, the lender will approve the financing and disburse funds to the builder in stages, known as “draws,” as the project progresses.

Because of these additional steps, construction-to-permanent loans may take longer to close and require more upfront preparation. However, they offer the advantage of long-term stability once the build is finished, making them a popular choice for buyers in custom-home markets like Boca Raton or gated developments throughout Fort Lauderdale.

Minimum Credit Scores and Down Payments

Conventional loans typically require a minimum credit score of 620, but most lenders prefer scores of 700 or above for new construction financing due to the additional risk involved. A higher score can also help secure a more favorable interest rate, which is especially important in a fluctuating rate environment.

Down payment requirements vary but generally start at 5% for conventional loans. However, when financing a to-be-built home or using a construction-to-permanent loan, lenders often expect a down payment of 10% to 20%, depending on the loan size and borrower’s overall risk profile. In South Florida, where new construction homes can command higher price points, planning for a larger down payment can increase your chances of approval and help you avoid private mortgage insurance (PMI).

Location-Specific Trends in South Florida

South Florida continues to attract new residents due to its favorable climate, diverse economy, and lack of state income tax. As a result, the demand for new construction remains strong in key areas such as West Palm Beach, Boca Raton, and Fort Lauderdale. Understanding how conventional loans interact with local construction trends is essential for prospective buyers.

In West Palm Beach, new developments are emerging on the outskirts of the city and in planned communities where builders often coordinate with preferred lenders. These homes are commonly available as spec properties, allowing conventional financing with fewer hurdles. Zoning restrictions and permitting delays may affect construction timelines, so working with a local mortgage professional familiar with city regulations is critical.

Boca Raton features high-end custom home markets as well as mid-range new construction in gated communities. Buyers in Boca often prefer semi-custom or custom builds, making construction-to-permanent loans more relevant. Premier Mortgage Associates frequently works with Boca-based builders and understands the permitting, insurance, and appraisal nuances specific to this affluent market.

Fort Lauderdale offers a mix of waterfront infill projects, townhouse developments, and suburban-style new builds. The city’s strict flood zone and building code requirements must be taken into account, particularly when financing through conventional means. Homes in designated flood zones may require additional insurance coverage, impacting overall affordability.

Appraisal Considerations for New Construction

A key step in securing a conventional loan for new construction is the appraisal process. Unlike existing homes, which are valued based on recent comparable sales, new construction appraisals rely on projected value and builder specifications. Appraisers must assess the home based on its final features, quality of materials, and location.

In some South Florida neighborhoods, finding comparable new construction sales can be a challenge. This is especially true in established areas with limited new builds. If the appraisal comes in lower than expected, buyers may need to renegotiate the purchase price or increase their down payment to bridge the gap. Working with lenders and appraisers familiar with the local market can mitigate these risks.

Timing Your Loan Application

Timing is everything when financing new construction with a conventional loan. If you’re purchasing a spec home, the application process usually begins once the builder provides a firm completion date. For to-be-built homes, the process starts earlier, but disbursements don’t begin until permits are approved and construction is underway.

It’s important to maintain communication with your lender throughout the build. Changes to the project’s scope, timeline, or cost can affect your loan terms. Keeping documentation updated and being prepared for periodic inspections ensures that the draw schedule stays on track and that the project continues moving forward.

Why Work with a Mortgage Broker in South Florida

New construction financing, particularly through conventional loans, involves coordination between buyers, builders, lenders, inspectors, and appraisers. Working with a mortgage broker who specializes in South Florida real estate streamlines the process and provides tailored guidance at every stage.

Premier Mortgage Associates, for example, works with local builders, understands regional permitting requirements, and has access to a network of lenders experienced in new construction lending. This localized expertise reduces the likelihood of delays and ensures that your loan is structured properly from the start.

Common Pitfalls to Avoid

One of the most common mistakes buyers make is assuming that the builder’s preferred lender offers the best deal. While these lenders may offer convenience, they might not provide the most competitive rates or terms. It’s essential to compare offers and evaluate the total cost of borrowing over the life of the loan.

Another pitfall is underestimating the cost of upgrades or customizations. Builders often charge premiums for add-ons like high-end flooring, cabinetry, and fixtures. If these upgrades increase the home’s price beyond the appraised value, you may need to pay the difference out of pocket or scale back your selections.

Also, be aware of potential delays. Weather events, labor shortages, or supply chain disruptions can extend the build timeline, which could impact your loan lock or approval window. Having a buffer in your financing terms or closing schedule can prevent last-minute issues.

Planning for the Long Term

Using a conventional loan for new construction offers long-term advantages for qualified borrowers. These loans typically come with lower interest rates than government-backed options and can be tailored to fit a wide range of financial situations. Additionally, conventional loans offer more flexibility in terms of property type, loan terms, and secondary financing options.

In South Florida, where real estate values continue to appreciate, building new allows buyers to secure a modern home tailored to their lifestyle without the competition of bidding wars. With the right financing structure, you can take full advantage of market growth while enjoying the comfort and efficiency of a brand-new home.

Preparation and professional guidance are key. By aligning your goals with the appropriate loan type, understanding local regulations, and choosing the right mortgage partner, using a conventional loan for new construction in South Florida becomes a strategic and rewarding investment.