Financing a Custom Build or Teardown in South Tampa: How Construction Loans, Draws, and Single-Close Conversions Actually Work

How do construction loans work for a custom build in South Tampa?

A construction loan funds a custom build in stages — the lender releases money in four to six draws as inspections confirm each phase, and you pay interest only on the drawn balance during the build. Most South Tampa builds use a construction-to-permanent structure that converts to a regular mortgage at completion with a single closing, and because project costs here routinely push loans past the 2026 conforming limit of $832,750, most are jumbo construction loans: expect roughly 20–30% down (land equity generally counts), meaningful reserves, and a lender-approved builder on a fixed-price contract.

The buyers doing teardowns and ground-up builds in Sunset Park, Culbreath Isles, and Davis Islands are usually experienced homeowners — but almost none of them have used a construction loan before. It's a different product from the mortgage you've had on every prior home: the money comes out in stages, the rate structure is different, the underwriting looks hard at your builder as well as you, and Florida adds its own layer of lien law, insurance, and elevation rules.

Here's how the financing actually works, what lenders expect on a high-end build, and where the process differs from a standard purchase.

One closing or two: how construction-to-permanent financing is structured

A construction loan is short-term financing — typically 12 to 18 months — that pays for the build itself. What happens when construction ends is the first structural decision you'll make.

• Single-close (construction-to-permanent). You close once, before ground breaks. The loan funds the construction phase, then converts automatically into your permanent mortgage when the home is complete. One set of closing costs, one approval process, and no re-qualification at the end. Under Fannie Mae's single-close rules, no individual construction period may exceed 12 months, with the total construction phase capped at 18 months before conversion.
• Two-close. You take a standalone construction loan, then close a second time on a permanent mortgage once the certificate of occupancy is issued. The second closing means a second round of loan costs — and Florida loan closings aren't cheap: documentary stamp tax on the note runs $0.35 per $100 borrowed, plus a nonrecurring intangible tax of 2 mills on a new mortgage. On a $2M loan, that's roughly $11,000 in state note taxes, which is a strong argument for a structure that touches them once instead of twice. The two-close route also leaves your permanent rate unset until the end of construction — you carry rate risk for the entire build.

The trade-off runs the other way on rate: a single-close sets your permanent rate early, which protects you if rates rise but can leave you above market if they fall. Ask any lender you're comparing three questions — when is the permanent rate set, what does an extended lock cost (fees run from roughly 0.25% to 1% of the loan amount depending on the term, sometimes structured as a refundable deposit), and is there a float-down option at conversion. The answers vary more between lenders than almost any other term.

During construction, you pay interest only on the drawn balance — not the full loan amount. Construction-phase pricing typically floats off an index such as prime — 6.75% as of July 2026 — so carrying costs step up as the build progresses and draws accumulate.

What jumbo construction underwriting expects — from you and your builder

Local cost guides put Tampa custom construction broadly in the range of $150–$240 per square foot, with South Tampa and waterfront builds regularly exceeding $400 per square foot once architectural complexity, elevation work, and finish level are priced in. Add a Sunset Park or Davis Islands lot and total project cost clears the 2026 conforming loan limit quickly — which means most estate-caliber builds here are financed with a jumbo construction loan, underwritten to standards closer to the jumbo purchase market than to a conventional construction product.

The money terms

Plan around these underwriting realities:

• Down payment: typically 20–30% of total project cost (land plus construction) on jumbo construction loans. Lenders size the loan against both loan-to-cost and the projected completed value.
• Land equity counts. If you already own the lot — common on teardowns where the land purchase closed months earlier — its value, less anything owed on it, generally counts toward your equity requirement. One caveat: many lenders credit the full appraised value only after you've owned the lot for a year or more, and use your purchase price before that. Buyers who paid cash for a Culbreath Isles lot often find the lot satisfies much of the down payment.
• Reserves: jumbo construction lenders commonly want substantial post-closing reserves — up to a year of payments at the high end — on top of the construction budget.
• Contingency: expect the budget to carry a contingency reserve, commonly in the 5–10% range, for overruns. If you don't spend it, it isn't borrowed.
• The appraisal is hypothetical. The appraiser values the home “subject to completion” from your plans, specifications, and builder contract. On a premium build, that appraisal — not just the budget — drives what the lender will advance.

The builder file and the draw process

Your builder gets underwritten too. Lenders review licensing, insurance, references, and financial capacity before approving the construction contract — a fixed-price contract with a defined draw schedule is the cleanest file. If you're still assembling your team, vetting builders against the lot and the lending requirements is part of what I do on the development and advisory side.

The draw process itself is disciplined but predictable: the builder requests a draw at a defined milestone — foundation, framing, dry-in, mechanicals, finishes — the lender sends an inspector to confirm the work, and funds release against that phase. Four to six draws is typical. Each draw also generates paperwork that protects you: lien waivers from the contractor and subcontractors, and title updates confirming no new liens have attached since closing.

The Florida layer: liens, insurance, and elevation

Three state-specific items separate a Tampa build from a build almost anywhere else.

Construction lien law. Florida's Chapter 713 lien framework requires a Notice of Commencement to be recorded before work begins on most permitted improvements, and the sequencing matters: your lender will record its mortgage before the Notice of Commencement so the loan keeps priority over construction liens. Subcontractors and suppliers preserve lien rights by serving Notices to Owner during the build — which is why the lien waivers collected at each draw aren't busywork. They're how you avoid paying twice for the same work.

Builder's risk insurance. Lenders require a builder's risk (course-of-construction) policy on the project, typically with the lender named on the policy. In Florida, these policies commonly carry named-storm deductibles in the 2–5% range and usually exclude flood, so a build in a FEMA special flood hazard area generally needs a separate flood policy from the start. Get quotes early — coastal construction insurance is its own market.

Elevation. New construction in a mapped flood zone must meet the Florida Building Code's freeboard standard — the lowest floor at base flood elevation plus one foot, measured more stringently in coastal V zones — which shapes foundation design and budget on waterfront lots in Sunset Park, Davis Islands, and Snell Isle before the first draw is ever requested. On older homes, the FEMA substantial-improvement rule is frequently what tips a renovate-versus-rebuild analysis toward the teardown in the first place.

If you're renovating instead of building

A major renovation runs through a similar decision tree with different products. Construction loans can fund extensive renovations, but for mid-scale projects a renovation loan, a HELOC, or a cash-out refinance may fit better — each converts differently, prices differently, and demands different documentation. And if the home sits in one of Tampa's local historic districts, design review comes before financing: the approval path I covered in the guide to buying a historic home in South Tampa determines your scope, and your scope determines your budget.

One more note for buyers weighing cash: plenty of high-end clients pay for the build outright and finance afterward, once the completed home supports a standard jumbo mortgage. That's a clean structure — but run the math on both paths before committing liquidity, because the rate, tax, and opportunity-cost picture shifts with the size of the project.

Frequently Asked Questions

How much do you need down for a construction loan in Florida?

On jumbo construction loans — which most South Tampa custom builds require — plan on roughly 20–30% of total project cost, plus reserves. Conventional construction products below the $832,750 conforming limit can require less, but few estate-caliber builds fit under that line.

Does land I already own count toward the down payment?

Generally, yes. Lenders typically credit your equity in the lot — its appraised value minus any lot loan balance — toward the required down payment. A lot owned free and clear can cover much or all of the equity requirement on the build.

Is a single-close or two-close construction loan better?

Single-close is the default for most owner-occupied builds: one set of closing costs, one round of Florida note taxes, and a permanent rate set before construction. Two-close can win if you expect rates to fall during the build or want to re-shop the permanent loan — but you'll pay a second set of closing costs and carry rate risk until completion.

What happens if the build goes over budget?

The contingency reserve — commonly 5–10% of the construction budget — absorbs normal overruns. Beyond that, you're funding the gap out of pocket, because the loan amount was set at closing against the appraised completed value. This is why lenders favor fixed-price builder contracts and why the pre-construction budget review deserves real scrutiny.

Do construction loans cover buying the lot?

Many construction-to-permanent loans can fund the lot purchase and the build in one transaction. If you buy a teardown before you're ready to build, a separate lot loan is the usual bridge — typically with a larger down payment and shorter term than a mortgage — refinanced by the construction loan once plans are finalized.

Financing a custom build rewards preparation more than almost any transaction I work on: the buyers who line up the lot, the builder, the budget, and the lender in the right order close faster and carry less risk than the ones who solve each piece as it surfaces. If you're weighing a teardown or custom build in South Tampa — or comparing the build route against new construction inventory — a direct conversation usually clears more up than another search. 

This article is general information, not lending, legal, or tax advice. Construction loan terms vary significantly by lender — verify current requirements, rates, and tax treatment with your lender and advisors.

About Shane Vanderson

Shane Vanderson is a License Partner and Broker Associate with Engel & Völkers South Tampa, licensed in Florida since 2012 and representing buyers and sellers across Tampa Bay's high-end market. He specializes in South Tampa, Harbour Island, Hyde Park, Davis Islands, Downtown Tampa waterfront, and luxury condominiums, holds membership in Engel & Völkers' Professional Athlete Advisory, and advises builders and developers through Development Services. Connect with Shane at shanevanderson.com or 813-205-5430. Equal Housing Opportunity.