Construction Loans in Florida: How Financing a Custom Build Works in Palm Beach County

October 1, 2026 · 9 min read · By Onias Derilus, Broker

A construction loan pays your builder in stages as the work gets done. Here is how single and two-closing loans, lot loans, Florida lien law and well and septic rules fit together in Palm Beach County.

A construction loan Florida buyers use for a custom home works differently from a regular mortgage, because the house does not exist yet when you close. Instead of one lump sum, the lender pays out money in stages as the builder finishes each phase. This guide explains how that works in Palm Beach County. It covers lot loans, draw schedules, the two main loan structures, builder's risk insurance, and the extra steps for well and septic lots in places like The Acreage, Loxahatchee and Jupiter Farms.

Key takeaways

A construction loan pays the builder in draws as work is finished and inspected, not all at once.

Construction-to-permanent loans come in two forms: a single closing, or two separate closings.

Under Fannie Mae rules, a single-closing loan's construction period can't run longer than 18 months in total.

Florida's lien law makes the notice of commencement a key document. Paying after it expires can mean paying twice.

On rural lots, the health department must approve well and septic plans before a building permit is issued.

How a construction loan works in Florida

With a standard mortgage, you borrow against a finished home that an appraiser can walk through. With a construction loan, the lender is lending against plans, a budget and a builder's contract. So the lender wants to see all three before it commits.

Most lenders ask for a signed contract with a licensed builder, a full set of plans, a line-item budget and an "as completed" appraisal. That appraisal estimates what the home will be worth once it is built. The lender then sets the loan amount using that future value, the cost to build, or both.

During the build, you usually pay interest only on the money the lender has paid out so far. Then, once the house is finished, the loan either converts to a regular mortgage or gets paid off by a new one.

Single close vs. two close construction loan options in Florida

Fannie Mae's Selling Guide describes two ways to structure construction-to-permanent financing. Both end with a long-term mortgage. The difference is how many times you close.

Single-closing loans

With a single closing, you sign once for both the construction phase and the permanent mortgage. Fannie Mae says the lender is responsible for managing payouts to the builder, contractor or other authorized suppliers. Fannie Mae also caps the construction period. No single period can run longer than 12 months, and the total can't run past 18 months.

The main upside is one set of closing costs and less paperwork. However, if the build runs long, you may need to talk with your lender about options, so ask about delays before you sign.

Two-closing loans

With two closings, you take out a short-term construction loan first. Then, when the house is done, you close on a separate permanent mortgage. Fannie Mae notes that it does not buy construction loans, but it does buy the permanent loans that pay them off.

This path can give you more freedom to shop for the permanent loan later. On the other hand, you pay closing costs twice. You also need to qualify again at the end, so a change in income, debt or rates can affect your second loan.

Lot loans and your Florida construction loan

Many custom builds start with the land. If you already own your lot, it may count toward your equity in the project. If you are buying the lot, some lenders fold it into the construction loan, while others want a separate lot loan first.

Fannie Mae's single-closing rules show why ownership matters. If you are buying the lot as part of the deal, the lender figures the loan-to-value ratio from the lower of the purchase price or the "as completed" value. If you already own the lot, it uses the "as completed" value alone. So a lot you bought years ago may help you borrow on better terms.

Before you buy land, do your homework on flood zone, access, zoning and utilities. Our guide on how to find land to build a house walks through what to check.

Draw schedules on a Florida construction loan

A draw schedule lists the stages of the build and how much the builder gets at each one. A typical schedule might include the foundation, framing, roof, rough plumbing and electrical, drywall, and final completion. The exact stages and amounts come from your loan and builder contract.

Before each draw, the lender usually sends an inspector to confirm the builder finished the work. Then it releases the money. This protects you as well as the lender, since no one gets paid ahead of the work.

Ask your lender these questions before you sign:

How many draws are there, and what triggers each one?
Who orders the inspection, and how long does a draw take to fund?
Does the lender collect lien releases from subcontractors and suppliers?
What happens if the build goes over budget?

Florida lien law and the notice of commencement

Florida has a detailed construction lien law in Chapter 713 of the Florida Statutes. It lets unpaid contractors, subcontractors and suppliers place a lien on the property they improved. That can happen even if you paid your builder in full, if the builder did not pay them.

The notice of commencement is central to this. Under section 713.13, the owner must record it in the clerk's office before work starts, and the owner must sign it personally. The notice is generally good for one year after it is recorded, unless it states a later date. It is also void if work does not start within 90 days.

The statute's required form carries a plain warning. Any payment you make after the notice expires counts as improper and "can result in your paying twice" for the work. So if your build runs past a year, talk with your lender and a real estate attorney about extending the notice.

Small jobs are exempt. Under section 713.02, an improvement with a direct contract price of $2,500 or less is exempt from most of the chapter. A new home is far above that line.

Builder's risk insurance and hurricane season

A house under construction needs its own coverage. Builder's risk insurance covers damage to the structure and materials during the build, such as from a storm, fire or theft. Some builders carry it, and some contracts require the owner to buy it. Your lender will want proof that someone has it.

In South Florida, timing matters too. Hurricane season runs from June 1 through November 30. A partly built house with no roof or windows is exposed. So ask your builder how they secure the site before a storm and what the policy covers for wind and water damage.

Also, builders in Florida must follow the Florida Building Code for every new home, including its wind-load rules. That affects windows, doors, roof attachment and more. These items are part of the budget from the start, so a solid builder estimate should already include them.

Well and septic lots in The Acreage and Loxahatchee

Many lots in the western communities, such as The Acreage and Loxahatchee, do not have city water or sewer. In that case, you will need a private well and a septic system. Both add cost and time, and both come before your building permit.

The Florida Department of Health in Palm Beach County handles septic and private well permits. According to its site, plans must be approved by its section before a building permit can be issued. Well drillers file location plans before drilling, so staff can keep the well away from septic tanks and other hazards. For a drinking water well, the driller also submits a completion report and a satisfactory bacteriological report.

At the end of the build, final approvals for the well and septic system must be recorded with the building department before a certificate of occupancy is issued. Your lender's last draw and loan conversion usually wait for that certificate. As a result, delays here can push back your move-in date.

What this means for your construction loan in Florida's rural areas

Build the well, septic system and site work into your budget and timeline from day one. A soil test and site evaluation early on can reveal costs before you commit. In addition, ask your lender whether draws will pay for these items or you need to cover them in cash.

Getting ready to apply for a construction loan in Florida

Lenders tend to look harder at construction loans than at regular mortgages. That is because there is more that can go wrong. Here is how to prepare.

Get your finances in order. Expect the lender to review your credit, income, assets and debts closely.
Pick a builder with a track record. The lender will likely review the builder, too. Our guide on choosing a custom home builder can help.
Plan for a cushion. Material prices and weather can push costs up. A contingency fund can keep the project moving.
Know your timeline. Line up permits, the well and septic plan, and the builder's schedule before you close.

Building vs. buying resale

A custom home lets you choose the lot, the plan and the finishes. But it also takes longer and carries more risk than buying an existing home. For some buyers, a newer resale home or a home in a new community is the better fit.

It helps to price both paths side by side. Compare the full cost to build, including land, site work and financing, with the price of similar finished homes nearby. Then weigh the time each path takes.

Frequently asked questions

How long can a construction loan in Florida last?

It depends on the lender and loan type. For Fannie Mae single-closing loans, no single construction period can run longer than 12 months, and the total can't pass 18 months. Ask your lender about its own limits.

Can I use land I already own as part of my down payment?

Often, yes. Many lenders count equity in a lot you own. Under Fannie Mae's single-closing rules, if you own the lot, the lender measures loan-to-value against the home's "as completed" value.

Who pays for builder's risk insurance?

It depends on your contract. Sometimes the builder carries it, and sometimes the owner must buy it. Either way, your lender will want proof of coverage.

Do I need a notice of commencement for a new home?

Yes. Under section 713.13 of the Florida Statutes, the owner records it before work starts. It generally lasts one year unless the notice states a later date.

Can I build on a lot without city water and sewer?

Yes, with a private well and septic system. In Palm Beach County, the health department must approve those plans before a building permit is issued.

Sources

This article is general information, not legal, tax or financial advice. Loan rules and permit steps change, so talk with a licensed lender, a real estate attorney and your local building department about your own project.

Selling land or a home to fund your build? We can price your current property and plan the timing around your construction schedule. Check what your home is worth or book a consultation. Weighing a build against a resale home? Get a new construction vs. resale comparison from a Pure Equity agent.