Ground Up Construction Loans in Florida

Finding the perfect property for your next project can be a difficult task. Existing buildings can be fraught with problems, such as construction that’s not up to Florida’s strict building codes or hidden issues with mold or mildew from the perpetually humid climate. If you want to be sure that you know exactly what you’re getting, new construction is the best way to go. Fortunately, there’s a convenient short-term lending option that’s tailored to exactly that. With a ground-up construction loan, you can create the perfect property that meets your needs while securing funding in convenient chunks as the project moves along.

What Is a Ground-Up Construction Loan?

A ground-up construction loan is a type of financing that pays for building a structure starting from ground zero. It can help investors and business owners pay for a variety of costs related to constructing a brand-new property, including:

• Labor.
• Materials.
• Land.
• Insurance.
• Permits.

With a ground-up construction loan, lenders, contractors, and investors work together to ensure every stage of a building project is completed. The loan can help you pay for the land if needed and let you use the funds to build a single-family home, multifamily building, or commercial building. This type of loan can be ideal for business owners who need a structure for a specific purpose or investors who want a property that they don’t have to fix up before renting or selling.

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How Ground-Up Construction Loans Work

Ground-up construction financing is more complex than traditional financing for an existing property. Since there’s no standing building for Florida construction lenders to inspect, they have to rely on detailed plans instead. Borrowers who want to secure a ground-up construction loan must develop a comprehensive plan for the project. This plan must include many things, such as the following:

• Purchase offers or deeds for the land to be built upon.
• Complete blueprints.
• Building specifications.
• Contract with a qualified builder to complete the project.
• Comprehensive budget, including appliances, landscaping, upgrades, and a contingency amount or reserve.
• Construction draw schedules.

The construction draw schedule is a unique feature of ground-up construction loans. Unlike other hard money loans, which provide you with the full funds at closing, a ground-up construction loan is paid out in installments. The borrower, contractor, and lender work together to create a draw schedule that specifies when each chunk of financing will become available. The loan only offers a limited sum of money upfront and provides subsequent payouts as you meet key milestones in the project’s construction. These payouts don’t go directly to the borrower. Instead, the lender submits direct payments to the builder and other professionals who are working on the construction. The first construction draw typically funds the purchase of the property and initial expenses, including permits. Certain events will trigger the project’s subsequent construction draws, such as the following:

• A set period.
• Completion of a particular construction phase.
• Completion of a percentage of the total project.

To receive the final draw, the contractor must prove that the project has been completed with a final inspection and certificate of occupancy or the equivalent.

Ground-Up Construction Loans vs. Other Lending Options

A ground-up construction loan is just one of many options that you’ll encounter as you explore the world of real estate financing. It’s important to understand all your options so that you can secure the most appropriate loan for your individual project. Some alternate loans that you may come across include the following:

• Traditional mortgage: A traditional mortgage finances a home that’s already been built. This is a long-term loan with upfront funding, while a ground-up construction loan is short-term and pays out in phases.
• Hard money loan: A hard money loan is an alternate form of short-term lending. This loan provides fast funding to purchase or refinance a property.
• Residential bridge loan: With a residential bridge loan, you can secure a second property before the sale of your first property. This can help you to secure your future home while you’re still in the process of selling your current one.
• Fix-and-flip loan: A fix-and-flip loan covers the purchase and renovation of an existing property. This is a good alternative to a ground-up construction loan if you’ve found an existing building that you’d like to renovate.

The Benefits of Ground-Up Construction Loans

A ground-up construction loan gives you complete control over your real estate project. You can build exactly what you need from the very beginning of the project and avoid any difficult retrofitting, remodeling, or repairs. Purchasing a pre-existing building may seem like a faster route to real estate ownership, but many older buildings come with a plethora of unpleasant surprises that will leave you struggling with upgrades and fixes for years to come. You will find the following with a ground-up construction project:

• All materials, appliances, and installations are new.
• The entire project is built to code.
• The building meets your exact needs and specifications.
• You have accurate plans and blueprints for every aspect of construction.

Who Should Use a Ground-Up Construction Loan?

Borrowers can use ground-up construction loans for single-family dwellings, multi-family housing, or mixed-use developments that combine residential and commercial uses in a single building. This type of loan is ideal for real estate investors who want to capitalize on a new project quickly, as ground-up construction loans often come through faster than bank financing. Ground-up construction loans offer short-term financing. Most of these loans have a period of only 12 to 18 months. This makes them ideal for completing construction and moving on quickly to the next phase of the project. At the completion of a ground-up construction loan, borrowers typically refinance with a more traditional 30-year loan. This offers long-term financing for the project. Many ground-up construction projects become rentals for real estate investors. You can also complete a ground-up construction project with the intention of selling it. Homeowners may choose this type of financing for their own dwelling to ensure that they get exactly what they want from their home.

Who Qualifies for a Ground-Up Construction Loan?

To qualify for a ground-up construction loan, borrowers need to meet a lender’s requirements, which are usually stricter than those of a mortgage. As mentioned, you need to have a larger down payment of at least 20%, which can be a challenge for new investors or small business owners to come up with. You’ll also need to have a decent credit score of at least 620. The higher your credit score, the better your interest rate. A low interest rate can help lower your interest payment on each draw.

Ground-up construction loans are perfect for builders who meet the qualifications and have land that needs to be developed, individuals who want to build a custom home on their land, and investors who want to build homes or commercial space they can rent or sell for a profit.

What Properties Are Eligible for Ground-Up Construction Loans?

Lenders that offer ground-up construction loans can help investors build single and multifamily homes as well as mixed-use buildings. Some lenders also provide construction loans for buildings that need significant rehabbing. You may be able to tie land financing into the overall construction loan if you don’t own a property yet. As a business owner, you can also use ground-up construction financing to help you create a space that meets your specific needs.

Find an Experienced Private Money Lender in Florida

When you’re securing a ground-up construction loan, it’s important to compare Florida construction lenders and find the company that suits your needs. Titan Funding is an experienced private money lender that is dedicated to serving innovators who want to pursue intriguing new real estate projects. Our team of entrepreneurs and investment professionals is eager to assist with your next construction. We’ll help you to explore your loan options and find the right fit for your needs.