Who this is for
You are building a house to sell it, not to live in it. It might be your first spec home, a house built before a buyer is found, on a lot you have held for years, or one of several a year under your company's name.
The lender's question is different from a custom build. It is not whether you can carry the payments for years. It is whether the finished home will sell for more than it costs to build, whether you and your builder can finish it on budget, and what happens if it takes longer to sell than planned.
Lendrite arranges spec construction loans with lenders who do them, credit unions and alternative lenders among them, and structures the loan so the exit works on paper before anyone commits. Book a 20-minute call →
What counts as cost
Loan-to-cost is the loan as a share of what the whole project costs; the rest is your equity.
| Cost line | What goes in it | What proves it |
|---|---|---|
| Land | What you paid for the lot, or its appraised value if you have owned it for some time. | Purchase contract, title, appraisal |
| Soft costs | Design, engineering, permits, survey, insurance, legal, and the fees of the loan itself. | Invoices, fee schedules, quotes |
| Hard costs | Everything from excavation to finishing, broken into stages; each stage is paid by a draw (a stage payment released as the build reaches a milestone). | Fixed-price contract or trade quotes |
| Contingency | An allowance for what the quotes miss. The lender's template sets a minimum. | The lender's template |
| Interest reserve | The interest the loan will cost during the build and the selling period, held inside the loan. | The lender's calculation |
| GST | Applies to new construction. Shown as its own line, not hidden in the trade quotes. | Your accountant's advice |
The lender advances a share of this total, capped by the appraised value of the finished home. Your equity, often the land, covers the rest and goes in first.
Interest reserve and fees
A spec home earns nothing until it sells, so the lender does not expect you to pay interest from your pocket each month. Instead, part of the loan is set aside as an interest reserve. As each draw is advanced, the interest it carries is paid from that reserve and added to the balance. The reserve is a cost line like any other, and it has to cover the build and a realistic selling period, not an optimistic one.
Fees on a spec loan are more than on a home mortgage: a lender fee, the appraisal, a fee for each progress inspection and legal costs, and all of them belong in the budget so the loan-to-cost is honest. Costs are gone through with you upfront, before you commit to anything.
There are no figures on this page because they depend on the lender, the project and your experience. There will be figures in the lender's written commitment, before you sign anything.
The builder experience package
Lenders back people as much as projects. The package that goes with the budget shows them who is building and what they have finished before.
- The builder's résumé: licence, warranty enrolment, and recent homes with addresses, dates and photographs.
- Your own résumé as the borrower, since on a spec build you are the developer even if someone else swings the hammer.
- A personal net worth statement, so the lender can see what sits behind the contingency.
- The corporate records when a company holds the land or signs the loan.
First spec home? Say so. We look for lenders comfortable with a first project when a strong licensed builder is on the contract, and we do not overstate the experience to get there.
The exit: sell or hold
Every spec loan ends one of two ways, and the lender wants to know which before the first draw.
Exit by sale
The buyer's mortgage pays out your construction loan at completion. The lender wants a market appraisal of the finished home, a realistic listing timeline, and an interest reserve that lasts through it.
Exit by hold
You keep the home and rent it, or move in. The construction loan converts to a regular mortgage, or to a rental mortgage sized on the rent, and the lender wants to see that income on paper before completion.
Changing the exit midway is possible, but it often means a different lender. Decide early, and if the market moves we look at it again before the last draw. The same questions apply to a fourplex built to sell as strata units.
What to bring
The spec items, on top of the usual income and ID documents.
- The budget, on the lender's template, with GST and the interest reserve as their own lines.
- The builder's contract and the plans, with the permit status.
- The builder's résumé and your own.
- The land: purchase contract, or title and any mortgage statement.
- A personal net worth statement, and the corporate records if a company is involved.
- Your income, ID and equity documents, listed on the document checklist.
The process from the first call to funding is on how it works.