Spec Home Construction Loans and Financing For Builders

Program Highlights: 

• Up to 90% LTC, 70% LTARV
• Loans from $50K to $3M
• 12-month term, with 18–24-month options case by case
• New construction loans are interest only, with interest on the construction portion paid only when drawn.
• The quickest draw process in the industry, with draws paid same day (draw submitted before noon eastern, or next day if draw submitted after noon eastern)
• 1 – 4 Unit Residential Only
• Rates start at 10.25%
• 1+ New Build and 680 mid score required 
• Heavy rehabs ($250k+ verified budget and or add a level/added square footage) considered toward new construction qualifications
• Closings in 8-10 days

What is a spec home construction loan?

Spec Home Construction Loans are a type of loan typically used by builders for constructing multiple properties at once. They are called “spec” loans because the builder does not know specifically who will buy the property after it’s built. The loan is based on the anticipated market value of the property once it’s completed, so there is a measure of risk incurred by the lender in providing this type of financing.

• Purpose: Builders use spec home construction loans to finance the construction of homes without having a specific buyer lined up.
• Concept: These loans are called “spec” loans because the builder doesn’t know in advance who will purchase the property once it’s completed.

How are Hard Money New Construction Loans and Spec Home Construction Loans different?

Hard money new construction loans are similar to spec construction loans in that they are both short-term and involve a high degree of risk for the lender. Hard money new construction loans, however, provide even more flexibility than spec loans and often come with higher interest rates and points as well. These types of loans can be used when traditional lenders won’t finance a project due to its complexity or other factors like lower credit score on part of the borrower.

In either case, both spec construction loans and hard money new construction loans require extensive paperwork, including detailed plans and cost estimates for the proposed project. It is also important to find an experienced lender that understands all the nuances involved in financing such a high-risk investment. With careful research and planning, these types of loans can be an attractive choice for builders looking to get their projects off the ground quickly without breaking the bank.

How can using the construction lot as equity serve as a down payment on the loan?

When considering using the construction lot as equity for your loan application, it’s important to understand how this strategy can positively impact your chances of loan approval. By leveraging the construction lot as equity, you open up the possibility of securing a higher loan amount based on the value of the lot itself. For example, if the lot is permitted, borrowers may be eligible for a loan amount of up to 75% of the lot cost. Furthermore, the total loan-to-cost ratio can extend up to 90%, indicating that a larger portion of the total project cost can be covered by the loan. This increased equity in the form of the lot not only makes the project more attractive to lenders but also enhances your overall creditworthiness, thereby improving the likelihood of securing loan approval. Therefore, utilizing the construction lot as equity can be a strategic move to bolster your loan application and enhance your chances of obtaining the necessary financing for your project.

Ken has been a hard money lender for over 25 years. He has funded over 25k deals for investors in that time. Ken specializes in fix and flips, ground up spec construction and 30 year DSCR loans. He is also a real estate investor in NJ and NY. Ken built several homes on Long Beach Island (Ship Bottom) after hurricane Sandy,