A house built before any buyer has signed a contract for it, so the loan is repaid only when a buyer is found.
The line between spec and presold matters because a presold house has a buyer and a spec house has only a forecast. The OCC handbook, citing interagency guidance, says a unit may be considered presold if a buyer has entered into a binding contract and made a substantial, nonrefundable earnest money deposit. The bank should also have documents showing the buyer has a written prequalification or commitment for permanent financing.
Everything else is speculative. The handbook says a construction loan agreement typically permits a limited number of speculative units and models, and that the expected absorption rate is an important consideration in setting the limit. Borrowing base terms commonly cap the number of spec units and how long a finished, unsold home can stay in the base.
The supervisory loan-to-value limit for 1- to 4-family residential construction is 85 percent.
A builder asking for spec financing should bring a sales history: homes started, sold and closed, and days from finish to contract.
How it shows up in the data here
Bank call reports have a line for 1-4 family residential construction balances held, which covers presold and spec homes together. Rank banks on it at construction books or filter construction in search. The file does not say how many homes are spec, and there are no loan-level records. Credit unions report construction loans made in the period.
Go further
- Construction comps: Lenders compared for construction lending.
- LTV and LTC calculator: Loan to value and loan to cost, the equity a lender will ask for, and the federal supervisory limit for the property type.
- Residential development loan package checklist: Lots and houses are repaid one sale at a time. A lender on a subdivision or a group of homes is underwriting how fast those sales will come and what happens to the loan if they slow down.
- Construction loan package checklist: A construction lender is lending against a building that does not exist yet. The package has to show what it will cost, who will build it, where every dollar comes from, and how the loan gets repaid when it is done.
Related terms
- Absorption: The pace at which a market leases or sells available space, lots or homes over a set period.
- Finished lots: Lots with streets and utilities in place, ready for a building to be started.
- Lot takedown: A builder's purchase of finished lots from a developer in batches on a set schedule, in place of buying them all at once.
- Construction loan: A short-term loan that pays for building or renovating a property, advanced in stages as work is finished and repaid from a sale or a permanent loan.
- Borrowing base: The most a lender will advance on a line of credit at a given time, set as a percentage of the eligible receivables, inventory or other collateral pledged.
- Construction draw: One advance of construction loan money, released after the lender confirms that the work it pays for is in place.
Sources
Plain definitions for orientation, not legal, tax or credit advice. A lender's own policy decides what it will do.