Can I get a construction loan for a spec house?
Yes, lenders finance spec homes, meaning houses built to sell without a buyer under contract, typically at 70 to 80 percent of cost and 65 to 70 percent of the appraised sale value, with terms of 12 to 18 months and rates of 9 to 13 percent from private lenders or prime plus 1.5 to 3 percent from banks. The loan is paid off from the sale, so the lender underwrites the market as hard as the builder.
What a spec lender underwrites
| Item | What they look for |
|---|---|
| Market | Days on market for comparable new homes, absorption, price trends |
| Comparable sales | Three or more recent sales of similar new homes supporting the projected price |
| Builder | License, insurance, completed homes, and a fixed budget |
| Budget | Cost per square foot in line with the market, 10 percent contingency |
| Margin | Projected sale price 15 to 25 percent above total cost |
| Equity | 20 to 30 percent of cost, including land |
| Exit | Sale; a backup plan to rent and refinance if the market slows |
Ranges vary by lender.
Typical terms
- Leverage: 70 to 80 percent of cost, capped at 65 to 70 percent of the appraised sale value.
- Term: 12 to 18 months, with extensions available.
- Rate: 9 to 13 percent private; prime plus 1.5 to 3 percent at banks that know the builder.
- Points: 1.5 to 3 private; 0.5 to 1.5 bank.
- Draws: Milestone or monthly, with inspections.
- Interest reserve: Build period plus a marketing period of three to six months.
The margin test
A spec lender wants the projected sale price to cover total cost, carrying costs, selling costs of 6 to 8 percent, and a builder profit. A house that costs $700,000 all-in and appraises at $800,000 is thin once $56,000 of selling costs come out. Most lenders want the appraised price at least 15 to 25 percent above cost.
Presales and models
A signed contract on the house, or on a similar house in the same subdivision, moves the loan from spec to presold and improves leverage and rate. Builders doing several homes often finance the model as spec and the rest as presold.
Multiple specs at once
Lenders limit the number of unsold specs per builder, commonly two to four, and want to see sales closing before advancing more. A builder with three unsold homes and a fourth request is usually declined until one sells.
The backup plan
If the market slows, the exit becomes a rental refinance. Lenders like to see that the house would work as a DSCR rental at a coverage ratio near 1.00 or better, which keeps the loan from becoming a distressed sale.
How CommFi handles it
One application with plans, budget, comps, and the builder's history. Our lending desk prices the spec loan first and funds direct when it fits. When a spec lender active in your market is the better fit, the desk searches a database of 7,000+ lenders and the ones that finance spec homes there compete for it. Zero upfront fees.
Related reading
Related questions
- Can I get a loan to build a house to sell?
- Yes. Spec construction loans typically fund 70 to 80 percent of cost from private lenders, or banks that know the builder.
- How much margin does a spec lender want?
- A projected sale price 15 to 25 percent above total cost, after allowing 6 to 8 percent for selling costs.
- How long is a spec construction loan?
- Twelve to eighteen months, covering the build plus a three to six month marketing period.
- How many spec homes can I finance at once?
- Most lenders cap unsold specs at two to four per builder and want sales closing before advancing more.
- What if the spec home does not sell?
- Refinance it as a rental with a DSCR loan if the rent supports the payment, or reduce the price. Lenders like to see that backup at application.
Property developer and licensed appraiser. 22+ years in real estate: TIC conversions, multi-unit redevelopments, mixed-use, fix and flips, commercial DSCR.