Your Guide to Secure Financing for Your Next Spec Home Project

Building a spec home can differ significantly from project to project, yet finding the right financing can often feel like an uphill battle. Whether you are a seasoned homebuilder or a novice builder excited to create your vision, understanding the intricacies of the financing process is crucial to bringing your goals to fruition. This blog will equip you with knowledge and valuable steps to make the financing process approachable and easy. 

Define Your Objectives

Before embarking on the financing journey, take a moment to define your objectives clearly. Your intent as a builder is vital, as it shapes your approach to funding and communicates your specific needs to potential lenders. Consider whether your goal is to sell the finished home as quickly as possible for profit or keep it as a rental property to generate ongoing income. Each objective comes with financing options and strategies, so clarity here is essential. 

Assess Your Financial Needs

The next important step is to assess the financial requirements for your spec home build thoroughly. This includes outlining every cost associated with the project: 

Evaluate the price of the land you plan to purchase, including any closing costs or fees associated with that transaction. 

Calculate the comprehensive cost of home construction, which involves materials, labor, permits, insurance, and any specialized subcontractor fees. Consider getting itemized quotes from contractors to ensure accuracy. 

Set aside a percentage of your overall budget (typically 10-15%) for unforeseen expenses during construction, such as weather delays or supply chain issues. 

A detailed budget helps you understand your financing needs and presents a strong case to potential lenders about your project’s feasibility

Checklists for the Financial Process

Navigating the financing world can be daunting, but following a well-defined step-by-step process can make it manageable. Here’s an in-depth look at what you should expect: 

  • Explore Your Financing Options: Research various loan types that may suit your projects, such as short-term construction loans, traditional fixed-rate mortgages, or lines of credit tailored for builders. Each type offers distinct advantages, so evaluate them thoroughly based on your goals and budget.
  • Prepare Your Documentation: Lenders will require specific documents to assess your financial standing and ensure your project is viable. These may include:

    • Personal tax returns for the past two years
    • Recent bank statements
    • Proof of income (pay stubs, W-2s, or 1099s)
    • Any existing debt documentation
  • Complete Your Loan Application: Complete the loan application precisely once you have gathered the necessary documents. Make sure to disclose all relevant information, including your financial history, the nature of the project, and anticipated timelines.
  • Seek Loan Approval: Once your application is submitted, the lender will carefully review your documentation. They may ask for additional information or clarifications. Be prepared to discuss your project and present your budget to demonstrate your preparation and commitment.
  • Finalize and Close the Loan: After receiving loan approval, you’ll go through the closing process, sign the necessary paperwork, finalize loan terms, and obtain the funds to commence construction. During this stage, ask about your loan’s terms, including interest rates, payment schedules, and associated fees.

Essential Documents Checklist

  • Project Plans and Specifications 

    Develop comprehensive blueprints and specifications that detail every aspect of your spec home. This should include architectural designs, material choices, and a timeline for construction. 

  • Accurate Construction Budget 

    Craft a meticulous construction budget highlighting all expected costs. This budget should break down expenses into materials, labor, permits, and contingency funds. Providing thorough estimates can reassure lenders about the project’s financial viability. 

  • Proof of Land Ownership or Acquisition Plans 

    If you already own the land, include documentation that proves ownership. If the land is yet to be purchased, be prepared to outline your financial plan for acquiring it and its expected cost. 

  • Contractor Details 

    Supply background information on your contractor, including their licensing, insurance, and a summary of their experience on similar projects. This helps build trust with the lender regarding your team’s capabilities. 

Understanding Closing Timelines

Familiarizing yourself with the typical closing timeline is essential for smooth project management. Generally, the process can take anywhere from 30 to 60 days, depending on factors such as lender responsiveness and the completeness of your documentation. With Shepherds Finance, we know that time is money. That’s why we aim to shorten timelines wherever we can and offer our builders even faster closing times—you can close in as little as 15 days as a new borrower to Shepherd’s Finance.

Being well-prepared and proactive can significantly shorten this timeframe, allowing you to start construction sooner and meet your project’s completion goals ahead of schedule.

Empowering Your Decision-Making Journey

As you navigate the financing process, prioritize making informed decisions. Fast closing accelerates your project timeline and can significantly enhance your return on investment. Take the initiative to compare loan offers, scrutinizing rates, terms, and any additional associated costs to select the financing option that best suits your financial landscape. 

Conclusion: Take Charge of Your Next Project

Financing your next project can be straightforward and empowering when approached with the proper knowledge and preparation. By following this guide and utilizing the provided checklists, you can navigate the complexities of financing with confidence and clarity. Shepherd’s Finance is your partner in helping you grow your business by offering tailored financing education and resources to help you succeed.

Are you ready to transform your vision into reality? Complete the form below to connect with your regional sales manager and get 90 days of no interest on your first loan!

We invite you to consider how Shepherd’s Finance can help you empower your residential construction projects. With our tailored lending solutions and business growth services, we’re here to support you at every step. Thank you for being with us—let’s build something remarkable together! Find your regional sales manager today for more information or to get started. Happy building!