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

How Conventional Loans Work with New Construction

Conventional loans are mortgages that are not insured or guaranteed by the federal government. Instead, they are backed by private lenders and generally follow the underwriting guidelines established by Fannie Mae and Freddie Mac. These loans are widely used for resale properties, but many South Florida buyers wonder if they can also be applied to new construction. The answer is yes—under the right conditions. Buyers can either use a conventional loan to purchase a move-in-ready spec home or combine it with a construction-to-permanent structure for homes built from the ground up.

Because new construction carries unique risks, lenders often place stricter requirements on these transactions. Unlike existing homes, where the property is already built and market comparables are available, new construction involves projecting value, coordinating with builders, and managing timelines. For borrowers, this means more documentation, more steps, and a deeper financial review.

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 spec home. These homes are built by developers with the intention of selling them either during construction or once completed. Because they are essentially move-in-ready, the loan process mirrors that of an existing home purchase. Buyers must meet the same conventional loan requirements for credit score, debt-to-income ratio, and down payment.

In South Florida, many builders design spec homes with conventional loan compatibility in mind. Communities in West Palm Beach, Boca Raton, and Fort Lauderdale frequently list these properties on the MLS, which allows buyers to use their own lender rather than being restricted to the builder’s preferred financing partner. Lenders typically require a final certificate of occupancy to confirm that the property is safe, habitable, and compliant with local codes. Once this certificate is issued, the loan can proceed to closing.

Financing a To-Be-Built Home

When buyers want to construct a home from the ground up, conventional loans do not typically cover the construction process. Instead, the buyer usually begins with a short-term construction loan, which pays the builder in stages as the home is completed. Once the property is finished, the borrower refinances into a conventional loan for long-term financing. This two-step process adds time and costs due to multiple closings.

An alternative is the construction-to-permanent loan, also known as a one-time close loan. With this structure, the financing begins as a construction loan and automatically converts into a conventional mortgage once the home is complete. This arrangement simplifies the process, reduces closing costs, and locks in the interest rate earlier in the build. Some lenders in South Florida specialize in this approach and work directly with builders to ensure all requirements are met.

Qualifying for a Construction-to-Permanent Loan

Qualifying for a construction-to-permanent loan involves more than evaluating the borrower’s financial profile. Lenders must also confirm the viability of the construction project, the builder’s credentials, and the projected value of the completed home. Detailed plans, cost estimates, and contracts are required, along with building permits and zoning approvals. The lender will order an appraisal based on the home’s proposed design and specifications. If the appraised value supports the loan amount, funding is approved.

The draw schedule is tied to construction milestones, such as the foundation, framing, roofing, and final completion. Inspections confirm progress before each disbursement. This ensures the lender that the property is being built as planned and within budget. In South Florida, where weather delays and permitting backlogs are common, careful coordination between the builder, lender, and borrower is critical.

Minimum Credit Scores and Down Payments

Credit score requirements for conventional loans usually begin at 620, but new construction buyers often need stronger credit to reassure lenders. Scores of 700 or higher generally yield more favorable terms. A strong credit history demonstrates financial responsibility and stability—qualities lenders especially value when financing a home that does not yet exist.

Down payments vary depending on the borrower’s profile and the project itself. While some conventional loans allow down payments as low as 5%, construction-to-permanent loans usually require 10% to 20%. Larger down payments minimize lender risk and can also help buyers avoid private mortgage insurance. In South Florida, where new builds often fall into higher price brackets, preparing for a substantial down payment is an important step in the planning process. For buyers moving up from an existing home, tapping into equity can be an effective strategy.

Location-Specific Trends in South Florida

South Florida remains a hotspot for new construction due to its favorable climate, diverse economy, and absence of state income tax. Cities like West Palm Beach, Boca Raton, and Fort Lauderdale each present unique market conditions that influence loan eligibility and buyer decisions.

West Palm Beach

West Palm Beach has seen significant growth in master-planned communities, many of which feature conventional loan-friendly spec homes. Buyers here benefit from predictable financing timelines, though zoning restrictions and permitting delays can occasionally extend the build process. In some areas, buyers must also consider homeowners association guidelines that impact appraisal values and insurance requirements.

Boca Raton

Boca Raton caters to buyers seeking luxury and customization. Semi-custom and fully custom homes are common, requiring more complex loan arrangements such as construction-to-permanent loans. Working with a lender experienced in Boca’s high-value market ensures smoother transactions. These homes often fall into jumbo loan territory, which adds stricter underwriting requirements. Investors in Boca Raton also tend to favor new builds for rental opportunities, which can complicate qualification since not all conventional loans allow for short-term rentals.

Fort Lauderdale

Fort Lauderdale offers a blend of waterfront infill projects, modern condominiums, and suburban-style new builds. Flood zone designations and strict building codes add layers of complexity. Lenders may require additional insurance, which affects affordability calculations and loan qualification. Buyers here must account for not only higher insurance premiums but also potential elevation requirements that can add to construction costs. Investors often look to Fort Lauderdale for Airbnb or vacation rental opportunities, which adds another layer of underwriting scrutiny.

Appraisal Considerations for New Construction

Appraisals for new builds differ from those for existing homes. Instead of comparing recent sales, appraisers evaluate the projected value based on builder specifications, planned finishes, and lot location. In areas with limited new construction activity, finding comparable sales can be difficult, which may lower the appraised value. If the appraisal comes in lower than expected, the buyer may need to increase the down payment or renegotiate with the builder. This makes working with lenders familiar with South Florida markets essential, since they understand local valuation challenges.

Timing Your Loan Application

Timing is crucial when financing new construction. For spec homes, the application process generally starts once the builder confirms a completion date. For to-be-built homes, the process begins earlier, but loan disbursements only occur after permits are secured and construction is underway. Staying in close contact with your lender during the build is essential. Any changes to the timeline, project scope, or costs may require adjustments to the loan terms. Being proactive with communication and documentation helps prevent delays.

Why Work with a Mortgage Broker in South Florida

New construction financing requires coordination between multiple parties, including the buyer, builder, lender, appraiser, and inspectors. Working with a mortgage broker who understands South Florida’s market can save time and prevent costly delays. Brokers like Premier Mortgage Associates partner with local builders and lenders, providing buyers with access to programs tailored for new construction. They can also help buyers prepare complete documentation and guide them through appraisal and inspection requirements.

Using resources like the Mortgage Calculator allows buyers to test affordability and plan ahead for different financing scenarios. This ensures that the chosen loan structure aligns with long-term financial goals. Knowing how different down payment amounts, interest rates, or loan terms affect monthly obligations helps borrowers avoid surprises after closing.

Common Pitfalls to Avoid

Several mistakes are common when buyers pursue conventional financing for new construction. One is relying solely on the builder’s preferred lender. While convenient, this option does not always offer the most competitive rates or terms. Comparing multiple lenders ensures better outcomes and long-term savings.

Another mistake is underestimating the cost of upgrades. Builders often offer base prices that do not include custom finishes. If these upgrades push the purchase price above the appraised value, buyers may need to cover the difference out of pocket. Planning a realistic budget and prioritizing upgrades can prevent surprises.

Delays also pose risks. Weather, labor shortages, or supply chain disruptions can extend timelines, which may affect interest rate locks and loan approvals. Building flexibility into your financing terms can help mitigate these risks. Buyers should also set aside reserves for unexpected costs, whether from design changes or inflation in material prices.

Planning for the Long Term

Conventional loans provide several long-term advantages for new construction buyers. They often offer lower interest rates than government-backed programs and provide flexibility in terms and property types. They also allow buyers to build equity in modern homes that may appreciate faster due to energy efficiency, design trends, and location appeal.

In South Florida, where competition for existing homes remains high, new construction offers an opportunity to bypass bidding wars and customize living spaces. Real estate investors find these loans appealing because they allow participation in the booming new build market without resorting to higher-cost financing. First-time buyers benefit from the predictability and affordability conventional loans provide once construction is complete. Homeowners looking to refinance down the road also appreciate that conventional loans often offer smoother refinancing options.

By preparing thoroughly, choosing the right loan structure, and working with experienced professionals, buyers can make conventional loans a practical and rewarding solution for financing new construction homes. Partnering with local experts ensures that borrowers not only qualify but also thrive in their investment, turning a new build into both a home and a strategic financial decision.