Florida has some of the world's most beautiful, luxurious, sought-after locations. We're practically overflowing with upper-tier properties from the Keys to Jacksonville to Pensacola.
But sometimes, the property that fits your needs and desires doesn’t exist yet. If that’s the case, it’s up to you to build the Florida property yourself. And to do that, you’ll need a jumbo construction loan.
Why you need a jumbo construction loan
If you're planning to build a luxury home or a high-end custom property, a jumbo construction loan is one of the best ways to provide the financing you need.
These loans are designed for large-scale construction projects that exceed conventional loan limits. But how do they work, and what should you know before applying?
This jumbo construction loan guide will walk you through the process, from qualifications to key steps.
Start your application with MIDFLORIDA Credit Union.
What is a jumbo construction loan?
A jumbo construction loan is a specialized type of financing used for building homes that exceed the conforming loan limits set by Fannie Mae and Freddie Mac.
In 2024, the conforming loan limit for single-family homes is $766,550 in most areas.
If your project requires more than this amount, you will need a jumbo construction loan.
These loans are ideal for large-scale projects like luxury homes or custom-built properties, especially in areas with higher construction and land costs.
They typically cover both the land and construction expenses, allowing you to finance your entire project with one loan.
Jumbo construction loans offer greater flexibility than standard construction loans, which are capped at conforming loan limits. However, due to the larger loan amounts and increased risk for lenders, they also come with more stringent qualification requirements.
How to qualify for a jumbo construction loan
Qualifying for a jumbo construction loan can be more challenging than securing a conventional loan.
Lenders will carefully evaluate your financial situation to ensure you can handle the larger loan amount and associated risks.
Here are the key factors they will assess.
Strong credit score
A strong credit score is necessary when applying for a jumbo construction loan.
Most lenders require a score of at least 700, but a score of 740 or higher may qualify you for better rates.
If your score is below the threshold, you may need to improve it by paying down existing debt and ensuring timely bill payments.
Large down payment
Depending on the lender and your financial profile, jumbo construction loans typically require a downpayment of 20% to 30%. This larger upfront investment demonstrates your commitment and offsets the lender’s risk.
Low debt-to-income (DTI) ratio
Lenders prefer a DTI ratio below 43%, meaning your total monthly debt payments, including the future jumbo loan payments—should not exceed 43% of your gross monthly income.
If your DTI is higher, you may need to pay off existing debt to qualify.
Significant cash reserves
Lenders usually require proof that you have cash reserves totaling six to 12 months of mortgage payments. This shows you have the financial stability to cover expenses during construction and beyond.
Proof of income and financial stability
You’ll need to provide detailed financial documentation, including copies of previous tax returns, bank statements, and investment accounts. This helps the lenders ensure you have the money to finish your project and repay the loan.
What is the jumbo construction loan process?
Obtaining a jumbo construction loan is more complex than a standard mortgage and involves several key steps, including the following.
Pre-qualification and approval
The first step is pre-qualification, where the lender assesses your financial situation to determine whether you meet the initial requirements.
Afterward, you’ll move to the formal approval stage, where your financial documents and project plans will be thoroughly reviewed.
Selecting the land and builder
Once pre-approved, you can choose a piece of land that fits within your budget. You’ll also need to select a licensed and reputable builder with experience in large-scale projects.
Lenders typically require that you work with an experienced contractor with a proven track record of completing similar projects.
The builder's qualifications can greatly impact your loan approval, so it’s important to conduct background checks, review their past work, and speak with previous clients.
Loan closing and disbursement
After finalizing the land and construction plans, you’ll proceed to loan closing.
Unlike traditional mortgages, which disburse the full loan amount at once, jumbo construction loans are disbursed in phases.
These draws are tied to the completion of specific construction milestones.
Completion and loan conversion
Once construction is complete, your loan may convert into a permanent mortgage. At this point, you’ll begin making regular payments based on the loan terms.
Some lenders offer both fixed-rate and adjustable-rate options for this phase.
Understanding construction-to-permanent loans
One option for financing a construction project is a construction-to-permanent loan, which combines construction and permanent financing into a single loan.
During construction, you make interest-only payments, and once the home is complete, the loan converts into a standard mortgage.
This simplifies the borrowing process and provides a predictable payment schedule for the long term.
Managing risks during the construction phase
Building a custom home or luxury property comes with various risks, particularly during construction.
It’s essential to plan for potential delays, cost overruns, and unexpected issues that may arise.
One way to mitigate these risks is to work closely with your lender and builder to establish clear communication channels.
Additionally, it is a good idea to set aside a contingency budget (typically 10-15% of the total project cost) to cover unexpected expenses.
By preparing for these possibilities upfront, you’ll be better positioned to manage the financial and logistical challenges often accompanying large construction projects.
Start building your dream home with MIDFLORIDA
A jumbo construction loan can help you finance the luxury home or high-end custom property you've always envisioned.
While the qualification requirements are more stringent, the right loan offers the flexibility to turn your dream into reality.
Take the first step in building your custom home; apply with MIDFLORIDA today.
With the right financing, your vision is within reach.
