Why It’s Hard to Get Spec Home Financing  in Arizona (And What You Can Do About It)

Got great plans, but struggling to get spec home financing? An alternative lending option can help you get the job done.

The term “spec home” refers to one that is “speculative,” or is uncertain in the sense that the builder does not have a buyer lined up for it before beginning the project. Although a great many houses are custom-built with a specific person in mind, specs are popular in outlying areas that are experiencing rapid growth or existing neighborhoods with demand and empty space.

The fact that there is no buyer lined up ahead of time, and construction expenses are higher than, say doing a fix-and-flip, means these projects are a bit more risky than others. Because of this, it can sometimes be a bit more difficult to get Spec Home Financing  in Arizona than other loan types. You are, in essence, selling an idea to the lender. Ergo, you have to think like you’re the one lending out the money.

If you haven’t already selected a property, this is a great place to start. “Improved land,” which is already connected to things like sewers, electricity, and roadways, is usually considered a safer bet than “raw land,” which is not. Depending on the nature of the developments, improved land is usually more valuable as well, which is helpful if you decide to use it as collateral. Oftentimes, banks aren’t overly-excited about lending money to purchase land. Average people don’t often develop it or live on I, which means if the land owner runs into trouble down the line, the bank is getting stuck with an unusable piece of property. Although builders may have the vision that leads to a high-value property and the knowledge to see it through, banks still usually expect them to cover half or all the cost of the land on their own. That’s where alternative funding shines.

If You Can Pay for the Land, You Can Use it as Collateral

If you’re looking into alternative options, Spec Home Financing  in Arizona is more easily achieved through collateralization. That means you use the land, which you’ve already paid for, as collateral on a loan to cover construction costs. As an alternative, you can sometimes use another piece of property, such as your own home, as collateral. The big difference with an alternative option like hard money is that loans are for a shorter period of time, so you’ll want to make sure you can have the house built and sold within a small window; typically about a year or two, though some loans extend longer. During this time, you’d likely only make payments toward the interest, which keeps more money in your pocket throughout the construction process. However, it is all due in one lump sum at the end of your term, so most builders try to have the house sold before construction is complete.

Risk less by carrying out a realistic assessment of value and likelihood of a fast sale.

One of the best ways to determine what your finished project will sell for and how quickly it will close is to talk to an appraiser who specializes in homes in the area you want to build. You can also check out property sales for the past 6-12 months to see how much time houses are sitting on the market and how their prices are fluctuating. With this information in mind you can approach a broker about getting Spec Home Financing  in Arizona and you’ll likely receive it.