Paying mortgage and rent can be strenuous on your financial budgeting. Thankfully, you can build your dream home with the help of a SPEC construction lender.
SPEC Construction Loan- An Overview
A SPEC loan or Speculative loan gives special allowances to homes that have not been constructed yet. It is, therefore, quite difficult to predict the exact amount of money that would cover the construction costs.
The SPEC construction lender has to approve the project proposal before agreeing to fund it. The proposal will include an approximate budget, a floor plan and a projected timeline within which the construction will be completed.
The borrower will pay the fees during the construction phase. It will continue till the project ends. Even at this point, the total amount loaned is unknown. Once the structure is constructed, and the borrower takes possession of the house, they will then be responsible for the final principal loan amount along with the interest.
SPEC loans come with a set of benefits. One of the chief benefits is you can customize your home. You get to be involved in the process from the beginning and supervise the layout, interior and room sizes as well. You can choose all your floor layouts, design, cabinetry and other custom finishes.
Regular Cash Flow
Just like any traditional construction financing, SPEC financing is paid in increments.
Obtaining SPEC Loans
Some can avail of the SPEC loan through their creditworthiness. The construction lot can be used as equity to secure the loan as well.
It might considerably improve your chances of getting approved. Moreover, it will serve as a down payment on the loan.
The chances of you getting approved for financing your project is higher when the investment property attracts more potential buyers when it is finished.
SPEC loans on already constructed properties need less additional work and attract more buyers when compared to completed infrastructure.
How do you secure a SPEC Loan?
There are certain requirements one needs to meet to secure SPEC financing. A very common one is a down payment of 20% – 25%, along with financial stability proof. One needs to have a good credit score and a considerable sum of money in their bank account.
Once you meet these factors, you need to specify the project that you want to take the loan out on. Then your chosen builder’s credits are evaluated.
An appraiser can give their opinions to the lender that will help them determine the potential worth of the home.
Factors like the location of the property and comparable property values in the neighborhood are taken into consideration as well. All these factors contribute to the value of the project.
Financing your dream home now is just a SPEC loan away.
SPEC Construction Loan versus Mortgage Loan
SPEC loans are short term. Mortgages, on the other hand, have to be repaid in installments over 15 to 30 years. Loans on semi-custom homes max out at one year. It is a good thing, as interest rates are higher with these allowances. Thus, you don’t have to carry the burden of the added cost for a long time.
There are some downsides to SPEC properties. The interest rates in SPEC increase as there is a greater risk as a home under construction has much less value and thus cannot be an appropriate placeholder for the loan. However, in mortgage loans, the house is the collateral and can be taken from the borrower if he fails to pay it back.
Once the home is completed, most construction loans become traditional mortgages. Then you can pay off the remaining construction debt the same way you would pay off the cost of a pre-built home.
