Spec Home Financing

What is a spec home? It is basically a home which is built on the assumption that a buyer would like it or a buyer would be easily found for the home. It is a newly built, not a used one, and is built keeping in mind the wants and needs of the buyer. It is generally very spacious and is mostly built on the city outskirts. It is a kind of an investment made by the buyer and he builds them with the intention of selling. There are different financing options available for building a spec loan if you do not have the money to build it. Now let us see what they are:

There are two types of programs for getting loans for spec home construction. One is the higher value program and the other is the lower value program. These are just loose terms. The higher value program gives you the loans at attractive interest rates and the interest paid is actually on the value of the installment amount and not the entire amount. In case of a lower value program, the flexibility of the loan depends on the documents provided. It basically has very high interest rates and the interests are calculated on the total loan amount. Now let us look at what banks look in a spec home constructor before financing their construction.

1. The builder must be a renowned builder. Someone who has had previous experience, in spec home construction and has excellent track records. Obviously, the bank does not want its money to end up in the hands of a person who knows only sand, cement and bricks but does not know how to put them together to build a home.

2. The land which is built upon must be of good value and accessible to prospective buyers. This helps in selling the house a bit more quickly once it is constructed.

3. The money you would be making after the selling off the house must be substantially more than the total costs which were incurred for building the house. This would ensure the banks that they are not investing in a loss making project. A business plan would come in very handy in this regard.

4. If there is someone working along with you who has had previous experience, then that would be an added advantage. That would improve the chances of you getting the loan quicker. If there is some really big shot willing to vouch for your work, then it would be even better.