Financing a New Construction Home in Central Florida

How Financing Works for New Construction

Financing a new construction home is different from financing a resale home. Instead of a simple purchase and closing, you are dealing with a home that does not exist yet. The financing process involves either a construction loan that converts to a permanent mortgage, or a standard purchase mortgage with a longer rate lock to cover the construction period.

In Central Florida, most buyers of new construction homes from production builders use builder-favored financing, where the builder's preferred or in-house lender handles the loan. This is the simplest path and typically comes with incentives. Independent or custom home construction uses construction-to-permanent loans.

Construction Loan vs Permanent Financing

Construction-to-permanent loan: This is one loan that covers both the construction phase and the permanent mortgage. During construction, you pay interest only on the amount drawn. Once construction is complete, the loan converts to a standard amortizing mortgage. This is the most common structure for custom homes and for some production builders.

Standard purchase mortgage for production homes: When buying from a large production builder like Lennar or Pulte, you typically get a standard mortgage commitment that closes when the home is complete. You do not need a separate construction loan because the builder funds construction. This is simpler for the buyer but requires you to lock your rate early and potentially pay a longer rate lock fee.

Stand-alone construction loan: You get a short-term loan to fund construction. When construction is done, you get a separate permanent mortgage. This is less common with production builders but used for custom builds. It involves two closings and two sets of closing costs.

Builder Lender Incentives Explained

Builders offer significant financial incentives for using their preferred or in-house lender. Here is how the incentives typically work:

Incentive tiers: Builders structure incentives based on whether you use their lender, a lender on their approved list, or an outside lender. Using the builder's lender gives you the maximum incentive package. Using an approved lender may give you a partial incentive. Using an outside unapproved lender may eliminate incentives entirely.

Typical incentive differences:

Builder lender: full closing cost credit ($6,000 to $15,000), rate buydown, design center credit.
Approved outside lender: reduced closing cost credit ($2,000 to $5,000), may still qualify for some incentives.
Outside lender not on approved list: may lose all incentive eligibility.

Builders use this structure because their lender is more reliable in meeting construction deadlines, can lock rates early, and is familiar with the builder's process. It also gives the builder a revenue stream from the mortgage origination.

When to Use Builder's Lender vs Your Own

The decision depends on comparing the total costs of each option.

Use the builder's lender when:

The incentive package is worth more than the rate/fee difference with an outside lender.
You need the maximum closing cost credit to reduce cash at closing.
You want a rate buydown that the builder subsidizes.
The builder's lender offers competitive rates and fees.
You want the simplest process with the fewest coordination issues.

Use an outside lender when:

The outside lender offers a significantly lower rate that exceeds the incentive value.
You have an existing relationship with a lender you trust.
The builder's lender has poor reviews or high fees.
You need specialized financing (VA, USDA, or specific portfolio products) that the builder's lender does not offer well.

The best approach is to get loan estimates from both the builder's lender and an outside lender, then compare the total cost including all fees, rates, and the value of lost incentives.

How Rate Buydowns Work

A rate buydown is a financial tool where the builder (or you) pays an upfront premium to the lender in exchange for a lower interest rate for a period of time. The most common types in 2026 are:

2-1 buydown: Your rate is reduced by 2 points the first year and 1 point the second year. For example, if the full rate is 7 percent, you pay 5 percent in year one and 6 percent in year two. From year three onward, you pay the full 7 percent rate. This is the most common buydown offered by builders.

3-2-1 buydown: Your rate is reduced by 3 points in year one, 2 points in year two, and 1 point in year three. Less common and typically offered on higher-priced homes or during slower sales periods.

Permanent buydown: The rate is reduced for the entire loan term. This is the most valuable but also the most expensive for the builder. Typically offered only on quick move-in homes or as a premium incentive.

The cost of a buydown is calculated based on how much the rate is reduced and for how long. A 2-1 buydown on a $500,000 loan might cost the builder $10,000 to $15,000. This is real value to you as the buyer, but remember that your payment will increase when the buydown expires.

Down Payment Requirements

Down payment requirements for new construction are similar to resale. The requirements depend on your loan type:

Conventional loans: 3 to 5 percent minimum down payment. 20 percent avoids private mortgage insurance (PMI). Closing cost credits cannot be used toward the down payment.
FHA loans: 3.5 percent minimum down payment. The builder can contribute up to 6 percent toward closing costs.
VA loans: 0 percent down payment for qualified veterans. The builder can contribute up to 4 percent toward closing costs.
USDA loans: 0 percent down payment in eligible rural areas. Builder contributions allowed within program limits.

Note that builder incentives like closing cost credits reduce the cash you need at closing but cannot be counted as down payment. You still need to bring your down payment from your own funds.

How Appraisals Work on New Construction

The appraisal process for new construction is different from resale because there are no existing comparable sales for that exact home:

The appraiser uses comparable sales from the same or nearby new construction communities.
The appraisal value is based on what similar homes (similar size, finishes, location) have sold for recently.
If the appraisal comes in at or above the purchase price, you are fine.
If the appraisal comes in below the purchase price, you have an appraisal gap. You may need to bring additional cash to closing or negotiate with the builder.
Upgrades you selected at the design center may not appraise dollar-for-dollar. The appraiser will consider them in the overall value but typically at a discount to what you paid.

To reduce appraisal risk, your agent can help you choose comparable sales and provide the appraiser with information about the upgrades and features of your home.

What Costs to Expect at Closing

Closing costs on a new construction home in Central Florida typically include:

Lender fees: Origination fee, underwriting fee, processing fee. Typically $1,000 to $3,000.
Appraisal fee: $500 to $800.
Credit report fee: $30 to $50.
Title insurance: Owner's and lender's title policies. $1,500 to $3,000 depending on purchase price.
Settlement/closing fee: $500 to $1,000.
Recording fees: $100 to $300.
Transfer taxes: Florida documentary stamp tax on the deed: approximately $0.70 per $100 of purchase price. On a $500,000 home, roughly $3,500.
Prepaid items: Property taxes, homeowners insurance, prepaid interest. Typically $2,000 to $5,000.

Total closing costs (excluding down payment) on a $500,000 new construction home typically range from $8,000 to $15,000. Builder closing cost credits can offset much or all of this amount.

Frequently Asked Questions

Do I need a pre-approval before shopping for new construction?

Yes. Builders will ask for a pre-approval before you can sign a contract. Getting pre-approved also helps you understand your budget before you start comparing communities and builders.

Can I lock my interest rate during construction?

Yes, and this is one of the advantages of using the builder's lender. They typically offer a longer rate lock period (180 to 360 days) that covers the construction timeline. There may be a fee for the extended lock, which the builder sometimes covers as part of the incentive package.

What is the difference between the builder's in-house lender and preferred lender?

The builder's in-house lender is a mortgage company owned by or affiliated with the builder. A preferred lender is an outside company the builder has an agreement with. Both typically qualify you for builder incentives, but the specific incentive amounts may differ.

Can I use my own real estate agent with the builder's lender?

Yes. Your choice of lender does not affect whether you can use your own agent. Register your agent on your first visit to the community, regardless of which lender you choose.