Homebuilders usually finance a project in stages: they control or buy land, pay to turn it into buildable lots, and fund home construction before closing proceeds arrive. Cash, operating receipts, credit facilities, debt, and land-option arrangements can all play a part. The mix—and the lender’s terms—varies by builder and project.
How do homebuilders finance land?
Buy land, buy finished lots, or secure lots over time
A builder can purchase land outright, borrow to acquire it, buy finished lots as they become available, or arrange to purchase lots later through an option or land-bank agreement. These approaches place cash commitments at different points in a project. An option may defer the full lot purchase price, but deposits, fees, delays, and contractual obligations can still tie up cash or create risk.
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One example—not an industry average—is Dream Finders Homes. In its 2025 Form 10-K, the company reported that deposits for finished-lot and land-bank option contracts generally averaged 10% of the purchase price. It reported $545 million in such deposits as of December 31, 2025. Those figures describe that company’s arrangements and balance, not terms available to every builder. Dream Finders Homes’ 2025 Form 10-K
Budget separately for land development
Raw land may need entitlements, permits, roads, utilities, landscaping, and other infrastructure before it is ready for homes. That creates a financing need distinct from buying the land and from building houses on finished lots. NAHB tracks land-development borrowing separately from land-acquisition and home-construction loans because the categories have different reported costs and terms. A survey average is a market indicator, not a loan offer to an individual builder. NAHB AD&C Financing Survey
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M/I Homes reported spending $523.7 million on land purchases and $645.6 million on land development during fiscal 2025. These are company-specific operating figures; they illustrate that acquisition and development can be substantial, separate uses of capital. M/I Homes’ 2025 Form 10-K
What is an AD&C loan?
AD&C means acquisition, development, and construction. It describes financing needs associated with obtaining land, preparing it for building, and constructing homes. Those stages are related but not interchangeable: a loan for raw-land acquisition is not automatically comparable to one financing infrastructure or vertical construction.
For home construction, NAHB’s survey separates speculative single-family construction from pre-sold single-family construction. The distinction is the home’s sales position when the financing is arranged: a speculative home has not been sold, while a pre-sold home has a buyer. The survey reports separate costs for these categories; it does not prescribe a universal underwriting standard, draw schedule, advance percentage, maturity, or collateral package.
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How do builders pay for construction before a home sells?
Builders have to fund construction work and related costs before a home’s closing produces sale proceeds. Depending on the company, funding can come from cash, operating receipts, revolving credit, senior notes, or other facilities. Public-company filings show examples of these sources used together, not a standard capital structure for all builders.
For instance, M/I Homes identifies cash flows from home deliveries, land sales, and mortgage-loan sales, along with cash balances and available credit, as liquidity sources. It says financing needs depend on factors including sales and deliveries, inventory turnover, planned land and lot purchases, debt maturities, and other business conditions. M/I Homes’ 2025 Form 10-K
A lender may evaluate a speculative home differently from one that is already pre-sold, but a builder should get the actual underwriting terms rather than infer them from the category name. The NAHB survey provides averages for rates and initial points, not a guaranteed borrowing cost or a complete term sheet.
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How do homebuilders manage cash flow?
Cash outflows may come well before revenue. In its 2025 Form 10-K, Dream Finders Homes describes early community-stage spending on finished-lot purchases, entitlements, permitting, model homes, roads, utilities, landscaping, and amenities. It also lists lot deposits and purchases, vertical construction, operating expenses, routine liabilities, and mortgage-loan origination among its uses of capital.
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The company explains that early stages can consume cash before revenue is recognized, while later stages can bring in cash after earlier outlays have already been made. It wrote: “As such, we incur significant cash outflows prior to the recognition of revenues and the related cost of sales.” This is Dream Finders Homes’ description of its own business in its 2025 filing, not a quantified rule for every builder. Dream Finders Homes’ 2025 Form 10-K
Options and land banks can stage when a builder commits the full purchase price and reduce the amount of undeveloped land held on its balance sheet. They do not eliminate cash-flow exposure: deposits and option fees require liquidity, and delays or performance obligations can affect when cash is needed. The amount and structure of those obligations depend on the company’s contracts.
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What do Q2 2026 AD&C borrowing costs show?
NAHB’s Q2 2026 survey reported the following average contract rates, initial points, and effective rates for four AD&C categories. Effective rates account for contract rates and initial points. These are survey averages, not individual quotes; actual terms depend on the borrower, property, lender, and loan documents. NAHB Q2 2026 AD&C Financing Survey summary and full Q2 2026 survey report
| Loan category | Average contract rate | Average initial points | Average effective rate |
|---|---|---|---|
| Land acquisition | 7.77% | 1.05% | 10.43% |
| Land development | 8.09% | 1.05% | 12.59% |
| Speculative single-family construction | 7.28% | 0.85% | 11.82% |
| Pre-sold single-family construction | 7.01% | 0.71% | 11.67% |
The comparison shows why the contract rate alone can mislead: the effective-rate averages differ from the contract-rate averages once initial points are taken into account. It does not establish that one category will always cost more than another for a particular borrower.
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NAHB reported that residential AD&C credit conditions had tightened for the eighteenth consecutive quarter through Q2 2026. In its builder/developer survey, the net easing index was -12.0, indicating net tightening. The comparable Federal Reserve lender-survey index was +3.7, indicating a different reported direction. The two indexes reflect different respondent groups—builders and developers versus lenders—so they should not be treated as interchangeable readings of one survey. NAHB’s Q2 2026 survey report
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Among NAHB respondents reporting tighter Q2 2026 conditions, 53% said lenders required personal guarantees or collateral unrelated to the project. Such terms can expose assets or the broader business beyond the financed development; the percentage applies to that subset of survey respondents, not to all builders or all loans.
What should a builder compare before accepting financing?
Compare proposals on the full obligation and on when cash will be needed or repaid—not just on the headline interest rate. Ask for the lender’s documents and underwriting details for the specific project.
- Purpose and stage: Is the borrowing for land acquisition, development, speculative construction, or a pre-sold home?
- Total borrowing cost: Compare the contract rate, initial points, fees, and other charges over the expected borrowing period.
- Equity required: What loan-to-value or loan-to-cost limits apply, and how much cash must the builder contribute?
- Guarantees and collateral: Is repayment supported only by project assets, or does the lender require a personal guarantee or collateral outside the project?
- Timing and repayment: What are the maturity date, construction period, repayment triggers, and lot take-down schedule? Do sales proceeds repay the facility?
- Liquidity and company-level capacity: How will deposits, option fees, infrastructure, overhead, inventory time, and debt service fit alongside the builder’s revolver, covenants, and other obligations?
NAHB’s survey can help frame market conditions and reported costs; it cannot substitute for lender underwriting or the borrower’s executed documents. The public-company filings cited above show particular liquidity and land-control choices, not terms that a smaller, custom, or private builder should assume will be available to them.
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