How to Finance a Spec Home

How to Finance a Spec Home
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When you build a spec home, you'll have to work with a mortgage lender. If you're a builder building a custom home for a client, that client will get a mortgage loan to pay you while construction is taking place. With a spec home, though, builders don't have clients; they're building a home with the intention of selling it either before or after it is completed. They need financing from mortgage lenders, then, to purchase their materials and pay their construction crews until the house is built and sold.

Gather and make copies of the financial paperwork that you'll use to prove to mortgage lenders that you have a high enough income to pay back the construction loan you'll use to finance the building of your spec home. This paperwork includes your most recent federal income tax return, savings and checking account statements and statements from any other sources of income, including rent checks and settlements. Make copies, too, of the documents that verify your monthly debt obligations, including any loan statements or credit card bills. Finally, make a copy of your construction company's business plan and cash-flow statements.

Write a marketing plan for your spec home. This plan should spell out how high you'll price your completed home and who your target buyers will be. It should also explain how you'll inform your target buyers that your home is on the market. Will you hire a real estate agent to promote your home? Will you include it in a local parade of homes event? Include this information in your marketing plan.

Call a mortgage lender--you can shop around at as many as you'd like--and request a construction loan for a spec home. Answer the basic questions that a lender will ask you: What is your Social Security number? What is the address of your spec home? How long is the estimated time of construction on the home? What will the spec home be priced at once it is built?

Send your lender the paperwork you copied in Step 1 along with your marketing plan. Your lender will consider all of this information in determining whether you qualify for a construction loan.

Give your lender the OK to run a credit check on you. This will tell lenders how well you've managed money in the past. Lenders rely heavily on your three-digit credit, or FICO, score today. If yours is at 720 or above, you'll qualify for the lowest possible interest rates.

Agree on a closing date for your construction loan if your lender approves your application. At this time, you'll sign the papers and pay the origination and closing fees that make your new loan official.


  • Before agreeing to take on a construction loan, make sure that the loan provides you enough money to finish building and selling your house.