Construction Loans Miami


Cannot find your dream home on the current market? Why not build one yourself? Building a house yourself is quite a different process from buying one. This process will require a lot of time, effort and of course money. Getting the funds to build your own house will require you to get into some form of debt; however, it is not a regular mortgage. What we are talking about is a construction loan.


When you are building a house yourself, you have an opportunity to get everything you wanted in your dream home. That being said, construction costs can add up and the process can have some unpredictable problems, but you have nothing to worry about. With various types of construction loans, you can get the funds quickly and upfront so that you can cover all of your expenses from materials and labor.

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What are Construction Loans?

As we have mentioned, a construction loan is a form of financing that is given short-term and will help you cover all of the expenses that come with building a home. This includes everything from finding and buying land, getting permits, drafting plans, and lastly getting materials and paying for labor.

How do Construction Loans in Miami Work?

As a future homeowner, home construction loans provide you with an opportunity to cover the costs that come with building a house. Additionally, this loan does not limit you to certain expenses that are limited to construction; you can also use this loan to acquire land for your house. Moreover, if you already own the land, you can use it as collateral to get a loan.


That being said, in the majority of cases, construction loans are meant to be used for the building process and because of that they are considered short-term loans and are provided for between 12 and 18 months. Sometimes these loans, once the construction is complete, become permanent mortgages.


Construction loans, unlike conventional mortgages, are not backed by a finished house. As a result, a construction loan’s application and approval procedures are more complicated than those for a mortgage. Before qualifying you for finance, your lender will probably want to go through your architectural drawings and assess your financial status. A rough budget and timetable for the construction process will probably also be required.

Getting a Miami Construction Loan

When you are granted a construction loan, you will not get the full amount at once. Instead, once the different phases of the building are finished, the lender will pay your builder through a series of draws or installments. Construction loans function in a similar manner to a line of credit. Drawings are planned in accordance with the timetable of construction, and the lender you are working with will probably send an inspector to verify the progress of the project before each payment.


Most of the time, you will only be required to pay interest on the funds that are actually used and not on the total loan amount. After construction is finished, you could also decide to turn your construction loan into a mortgage, depending on if the lender you are working with allows it. On the other hand, if that is not an option, you can apply for an end loan or a mortgage in order to make payments for your construction loan.

Types of Construction Loans in Miami

There is no one-size-fits-all method for building a house. Construction loans come in a variety of forms, including construction-to-permanent and construction-only loans, to accommodate future homeowners’ various demands. Homeowners who construct their own homes and those who make major improvements to an existing property have different alternatives.

Construction-to-permanent loan

When a house is finished, this loan turns into a fixed-rate mortgage, financing the house’s construction. Best suited for owners that are looking to reduce closing costs and secure mortgage funding.

Construction-only loan

This loan is issued by a lender for a short term and with an adjustable rate so the construction can be completed. Once the home is built, you will have to repay the loan in its entirety or refinance the loan into a mortgage.

Construction Loans for Owner Builders

Instead of paying a certified third-party contractor, owner-builders receive draws. Owners with expertise in building homes or who hold a contractor’s license are often the only ones who may apply for these loans.

Renovation loan

Renovation loans pay for the cost of buying a property and carrying out significant renovations and are most comparable to a regular mortgage. As a result, the loan amount is determined by the expected value of the house following renovations. This type of loan is best suited for homeowners that are looking to invest in significant renovations after buying a fixer-upper.

Construction Loans in Miami Florida Requirements

Here are the requirements you will have to meet in order to get a construction loan:

Having Adequate Credit

For applicants to be considered for a construction loan, lenders often set a minimum credit score requirement of 680 in order to decrease risk. You might want to look around and check requirements because other lenders can have even higher credit score requirements. Improving your credit score is an important step you have to do if you want to build a house and you want to get a construction loan.

Debt-to-Income Ratio

Your DTI ratio is calculated by dividing your gross monthly income by the total of all of your monthly debt payments, which includes the new construction loan. Having a low debt-to-income ratio tells the lender that you possibly have more cash to make the payments every month. For construction loans, lenders normally want a DTI ratio of no more than 45%.

Down Payment

To get a construction loan, you will be required to provide at least 20% for a down payment. That being said, depending on the lender the down payment might be more. In a case where you provide a down payment that is less than 20%, you will probably have to pay for private mortgage insurance.

Licensed Builder

Finding a home builder that is licensed and has a good reputation is a necessary step before you take out a construction loan. A good place to find a reputable home builder is the National Association of Home Builders.

Construction Loan Programs