Construction Loans for Spec Homes

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Does anyone have much experience with getting these types of loans? Do the lenders require you to own the land to finance the deal? I am doing a little research on the topic and I haven't been able to find much from an investor/builder viewpoint.

On individual lots I just pay cash for the dirt and then pull a construction loan if that's how I want to fund that spec. The lender pool is still small for this, but it's growing. If you find the right lender they may fund both land / house depending on your financials.

Terms we are seeing are 6% interest only for a year with an 85% ltv. If you build with cash and want to cash out refi it drops to 70% and a 6 month seasoning. The seasoning window starts when you buy the lot ( not at CO ) so cash isn't tied up too terribly long. Not a bad option for people who like to build their own rentals.

I was a homebuilder until 2007, then I had to get a desk job and ride out the recession. I'm just now planning on getting back into construction after a 6 year break. When I used to build it was easy to get a construction loan. They would lend on 80% of the cost. I'd give the bank my inflated estimate to get borrow the full cost. Today many of the local lenders won't lend on construction loans. The few who will require 20% down. Basically they want me to put 20% into a checking account with them, then verify that I've paid out of pocket until I've paid 20%. So, if I'm building a $400,000 custom home that will cost $340,000 to build the first $68,000 in bills are paid with my own cash. After that the construction loan kicks in.

It's definitely not as easy as it used to be, but it can be done.


Have you used a construction loan recently in Florida? If so, since they are hard to find can you recommend a lender? Your saying 85% loan to value they will lend on. Is that 85% on the market value after its built or 85% for the cost to build the home? Ryan mentioned they lend on the total cost to build.

Kevin - I have used construction financing recently. The 85% is the most aggressive number I've seen and it is based on the end value of the home after co. 70% is much more common.

My strategy for taking any bank financing on specs is to agree to roll it into a perm loan at issuance of the CO. This keeps the banks exposure limited and allows me to turn houses into rentals if they don't sell. The lenders I work with seem to like this structure.

My bank isn't in Jacksonville so that isn't going to help. You just need to hit the phones and talk to commercial loan officers at small community banks. One way you can narrow down banks who are lending is by writing down addresses of new construction you see and then searching that in public records. If the builder took a bank loan on the house you'll find out who the bank is by looking at the recorded mortgage.

Thanks for the info Steve! While were talking about it, how is the new construction market in Orlando recently? I actually just moved to Jacksonville from Orlando and I know the area pretty well. We are about to get one spec home CO and have two more getting built up here in Jax.

@Kevin Martin

I just got this back in November too. If you would tell them 'CPL Mortgage' sent you Company ID #771950 we're a Provident Funding broker so I think we get some sort of credit.

@Kevin Martin I believe Orlando has the lowest unemployment of major cities in Florida. Jacksonville is not far behind, but Orlando has also landed on a number of cities with HOT growth, as the economy comes back, people are going back to see the "Evil Mouse", it is a great destination city for sure.

With regard to construction loans, I know BBVA Compass has some great programs, Everbank too. Trustline Mortgage is a broker of mortgage products, they may have construction loans available, but most investors I know have been using private or hard money of late.

All we do is spec new construction, and have for years. We are licensed general contractors and brokers, so that helps. From office buildings, office parks, and residential, we've built them on spec. When the market was good, we were able to get bank financing. However; it's very hard, and extremely competitive right now for spec financing, and finding a HML may be your best option.

Also, you might try to find someone that owns their land free and clear to either joint venture with you, or subordinate to a construction loan.

You didn't mention what you experience is, or how you would be participating. Are you strictly an investor, or are you a contractor too? What is the market in your area like? If there's high demand for housing, a tight market, and healthy economy, then it's easier to convince lenders to get on board. Good luck.


We are also certified general contractors and real estate brokers. My father is the builder/developer and broker for more than 20 years and I am the engineer and also a licensed GC. He has a majority of the building/real-estate experience and I am just starting the learn the ropes on the real-estate side of things.

We are building spec homes in Jax right now and are using private money/partnership to fund our builds. I am just trying to get some info on this type of lending and see if the numbers work for us in today's market. We are in the pre-construction phase of building my first house (also my first real-estate deal) but after that I would hope to do my first deal with just me and my father.

To my knowledge, Jacksonville is looking excellent for the future in real-estate. Shortage of homes, unemployment is falling, ports (both commercial/cargo shipping and navy) are booming, and the public sector is growing too.

What kind of spec builds are you involved with now? Are you staying with mostly residential or a mix of everything? Also, have you ever used hard money with new construction?

Orlando is doing pretty well. For years it was rare to see trucks driving around with trusses / lumber / block / concrete but now they're all over the place. I'm cautiously optimistic but am limiting my exposure to no more than 4 specs going at any one time but in 2014 I might expand that with private money.

The biggest issue here is finding suitable lots.

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