What Can a Spec Home Construction Loan Pay For?

Building a spec home involves many expenses before the property is ready for sale. From acquiring the land to completing final finishes, the project can require substantial capital at different stages. New construction loans can be structured to provide financing throughout this ground-up process, although the exact costs covered depend on the lender and loan structure.

Land or lot acquisition can form part of the overall project cost. Once the site is secured, construction expenses can include site preparation, permitting, foundation work, framing, and structural components. Later stages may involve mechanical, electrical, and plumbing systems, followed by flooring, fixtures, paint, and other finishing work needed to complete the property.

For investors comparing residential construction loans, it is important to understand whether the lender combines land acquisition and construction costs or finances only the construction portion. These structures can affect the amount of capital the builder needs to contribute before and during the project. A lender may also establish a maximum loan-to-cost percentage that determines how much of the total project cost can be financed.

InstaLend's new construction loan can cover up to 90% of total project cost, combining acquisition and construction costs. Funds are released through milestone-based draws as work is completed. The program ranges from $50,000 to $5 million or more and carries a 12-month term, with extensions available.

Before starting a spec build, a builder should understand which project costs are included in the proposed financing and how those costs will be funded through the draw schedule. Having a detailed construction budget makes it easier to connect the financing with the actual stages of the build and identify the amount of capital needed from other sources.