Home / What is a spec home
What is a spec home? A first-time builder's guide
A spec home is a new house built before there is a buyer. Here is how spec building works, what it costs and how to finance your first one.
Get my termsNew construction loansSpec home definition
A spec home (short for speculative home) is a new house a builder or investor builds before any buyer has signed up, planning to sell it when it is finished. The builder picks the lot, the plans and the finishes, pays for the build with a construction loan, and earns the gap between the total cost and the sale price.
You do not need to be an experienced builder to build a spec home. We fund spec home loans for first-time builders at 90% of the lot and build budget.
See your terms in seconds
Your loan amount shows as you type. Send the deal and a loan officer follows up.
Estimate only. Loan amount is 90% of lot price plus build budget. Business-purpose loans on investment property, not homes you will live in.
How building a spec house works
- Find the lot in an area where similar new homes are selling.
- Pick plans and a budget that fit what buyers in that area pay for.
- Get the construction loan. The lot price and build budget go into one loan.
- Build in stages. Foundation, framing, dry-in, finishes. Each stage is inspected and paid as a draw.
- List and sell. The sale pays off the loan and you keep the profit.
Spec home numbers example
| Spec home | Amount |
|---|---|
| Lot price | $80,000 |
| Build budget | $320,000 |
| Total cost | $400,000 |
| Loan (90%) | $360,000 |
| Your cash (10%) | $40,000 |
| Sale price when finished | $560,000 |
| Gross margin before selling and loan costs | $160,000 |
Selling costs, interest, points and closing costs come out of that margin. Try your numbers in the construction loan calculator.
Spec home vs custom home vs tract home
| Type | What it means |
|---|---|
| Spec home | Built before a buyer exists, sold when finished |
| Custom home | Built for a specific buyer on their lot and plans |
| Tract home | One of many similar homes built by a large builder in a subdivision |
Risks to plan for
- Market: prices can change during the build. Build what sells now in that neighborhood.
- Budget: keep a contingency for overruns.
- Time: delays add interest and holding costs.
- Selling: price it with recent new-home sales nearby.
New to building? Read how to become a home builder.
Questions builders ask
Straight answers about what is a spec home.
What is a spec home?
A new house built before there is a buyer, to be sold when it is finished.
Is building a spec home profitable?
It can be when the sale price is well above the lot and build cost. The profit is the sale price minus the lot, build, interest, closing and selling costs.
Can a first-time builder build a spec home?
Yes. We lend to first-time builders with no completed projects.
How do you finance a spec home?
With a construction loan that covers the lot and the build. We fund 90% of the total and pay the build budget in draws.
How long does it take to build a spec home?
Many single-family spec homes take 6 to 12 months from closing to finished, depending on size, permits and weather.
More from Ground Up Construction Lending
Loans, tools and guides for investors building new homes.