If finding your dream home is proving too big a challenge, perhaps you are approaching the homebuying journey from the wrong perspective. Building a new home is a viable option if you want more control over the design and functionality of the house. But if you decide to proceed with a new construction project, you must figure out construction financing.
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Construction loans are an option for Florida buyers who want to build new homes. However, construction loans typically have higher approval standards than traditional home loans.
Common Construction Loan Challenges – Florida
Construction lending is necessary if you plan to build a new house, however several challenges must be overcome when you apply for a construction loan in Florida. Here are some of the potential hurdles.
Stricter Underwriting Guidelines
As the borrower, you will need a higher credit score and a larger down payment, and you’ll need to provide more detailed documentation for approval. Additionally, you are less likely to see flexible loan terms.
Project Feasibility and Appraisal Challenges
Construction projects are incredibly complicated, especially for residential units. The property that is built will need to be financially viable, which means a rigorous appraisal process will be necessary. You’ll need to find an appraiser with construction loan expertise to increase your chances of loan approval.
Contractor Selection and Oversight
A lot depends on choosing the right contractor for the construction phase. It can be pretty challenging to select qualified builders who meet the standards of your chosen lender. Most construction-based loan options have strict requirements for selecting qualified contractors.
Draw Schedule and Inspection Requirements
Throughout the construction process, funds from the loan will be needed at different stages. Unlike a traditional mortgage, there is the initial disbursement of a lump sum and then a scheduled timeline for future disbursements. This adds another layer of complication to construction lending since there needs to be a draw schedule that aligns with the project’s funding needs. Lenders often require regular inspections to ensure milestones are being reached and local regulations are upheld. This means additional inspection fees, so choose loans with more favorable draw schedules.
Unexpected Costs and Delays
Buying a house is much simpler because it has already been built. Even a highly successful construction project will likely encounter delays, setbacks, and unforeseen extra costs. These issues could be caused by supply chain issues, material shortages, and even weather delays. You must budget for these potential issues when you apply for a construction loan in Florida.
Solutions for Overcoming Construction Loan Challenges
Although there are challenges associated with Florida construction loans, there are also ways to overcome them. Here are some solutions that can make the financing process go smoothly.
Boosting Your Financial Profile
To succeed in the construction financing market, you must first get your finances in order. This means building up your credit score, reducing your debt-to-income ratio, and saving up for a larger down payment. These advantages will give you a better chance of succeeding in the loan application process.
Partnering with Experienced Professionals
The people and businesses you choose to work with will significantly impact the viability of your construction plan. First, you need a knowledgeable lender with a history of understanding Florida’s construction industry, so research your contractor bids thoroughly. Second, the builders you choose should have plenty of experience in the construction community. If your construction project is related to a business, it would not hurt to work with a dedicated business finance advisor to find the right solutions.
Thorough Planning and Preparation
Planning is the key to a successful project. A detailed plan for the project with your designer, architect, and builder is crucial. When you create your budget, be as specific as possible and remember to plan for contingencies. Experienced lenders understand local regulations and can help you determine which permits are needed for the project. Select construction materials early on to accurately view the associated costs. The more work you do preparing for the build, the easier it will be to overcome those challenges.
Managing Expectations
Whether you invest in significant renovations or an entirely new home, delays are inevitable. The costs involved in those delays can throw off your budget if you have not planned for them. This is why you must manage expectations from the jump. Understand that the final timeline may not be exactly as you planned. Budget for unexpected construction costs that could come up.
Communication and Collaboration
Communication is critical to effectively engaging in the construction process; you should always be in touch with your builder and lender. Working with the right lender and contractor can make this process easier, so vet potential partners thoroughly.
Specific Considerations for Construction Financing in Florida
Whether you are building a residential or commercial property in Florida, there are some specific considerations requiring detailed project plans.
Impact of Hurricane Season
Since the Sunshine State is at risk of hurricanes, relevant building codes must be maintained. Hurricane season could also cause delays in construction and additional costs.
High-Risk Coastal Areas
Certain parts of Florida are in higher-risk coastal areas. These zones have the potential for flooding, which makes a construction loan agreement more complicated. Unlike traditional mortgages, construction loans will have a stricter underwriting process if the project is located in a coastal area.
Building Your Dream Home with Construction Loans
Navigating your project timeline is easier with the right lender on your side. District Lending has plenty of experience with stand-alone construction loans, construction-to-permanent loan options, and other types of new-build financing. To overcome challenges like a stricter approval process, a higher total loan cost, and finding your own general contractor, District Lending is ready to assist you.
Contact our team today to ask about your construction financing concerns. We can’t wait to help you accomplish your dream of building a house in Florida, and understanding construction loans is the first step toward that dream.