What Loans Do Builders of Subdivisions Use?

Subdivision builders rely on a layered financing strategy that typically includes acquisition, development, and construction (AD&C) loans, bridge loans, spec construction loans, blanket mortgages, and construction-to-permanent financing. The specific loans used by subdivision builders depend on the project phase, builder experience, and lot count. Understanding each loan type and when it applies is the key to structuring a profitable subdivision project from raw land through final home sales.

Building a residential subdivision is one of the most capital-intensive ventures in real estate. Unlike a single home build, a subdivision requires financing across multiple overlapping stages: land acquisition, horizontal development (roads, utilities, grading), vertical construction of individual homes, and eventual sale or refinancing. Each stage carries its own risk profile, and lenders have developed specialized loan products to match.

In this guide, we break down every loan type available to subdivision builders, explain how takedown schedules and phased draws work, and help you decide which financing structure fits your next project. Whether you are building 10 lots or 200, this overview covers the full landscape of builder and developer financing.

Ready to finance your next subdivision? Clearhouse Lending provides AD&C loans, bridge loans, and construction financing tailored to subdivision builders. Contact our team to discuss your project.

What Are the Main Loan Types for Subdivision Builders?

Subdivision builders commonly use five core loan types: AD&C loans, bridge loans, spec construction loans, blanket loans, and construction-to-permanent loans. Each product addresses a different phase of the development cycle, and most large projects combine two or more of these products in sequence.

Here is a quick overview of how each loan fits into a subdivision timeline:

• AD&C (Acquisition, Development, and Construction) loans cover the entire lifecycle from land purchase through infrastructure installation and home construction. They are the workhorse of subdivision financing and the most comprehensive single product available.
• Bridge loans provide short-term capital to acquire land or cover gaps between development phases. Builders often use bridge loans to secure a site before permanent financing is in place.
• Spec construction loans fund the building of individual homes without a presold buyer, allowing builders to construct inventory homes and sell them on the open market.
• Blanket loans cover multiple properties or lots under a single mortgage, giving builders the flexibility to release individual lots as they sell without paying off the entire loan.
• Construction-to-permanent (C2P) loans convert short-term construction debt into a long-term mortgage once a home is complete, used either by the builder or transferred to the end buyer.

According to FDIC data, the volume of 1-4 family residential construction and land development loans stood at $91.2 billion in Q3 2025, reflecting the enormous capital requirements of the homebuilding industry. The total level of outstanding AD&C loans across all property types reached $463 billion during the same period.

How Do AD&C Loans Work for Subdivision Construction?

AD&C loans are the primary financing vehicle for subdivision builders because they bundle land acquisition, site development, and vertical construction into a single credit facility. A lender advances funds in phases tied to project milestones, starting with the land purchase and moving through grading, utility installation, and home construction.

An AD&C loan typically works as follows. The builder submits a detailed project plan including engineering drawings, a pro forma budget, an absorption schedule, and evidence of entitlements or zoning approval. The lender underwrites the project based on the "as-completed" appraised value and the total projected cost. Funds are then disbursed through a structured draw schedule, with inspections required before each release.

Typical AD&C Loan Terms

• Loan-to-cost (LTC): 65% to 80% of total project costs
• Loan-to-value (LTV): 60% to 75% of as-completed value
• Interest rates: Effective rates on land acquisition averaged 10.15%, while spec construction loans averaged 12.04% in Q3 2025 according to the NAHB AD&C Financing Survey
• Term: 12 to 36 months, with possible extensions
• Down payment: 20% to 35% of total project cost
• Recourse: Full recourse is standard for most subdivision AD&C loans

AD&C loans can be structured as "all-in-one" facilities that cover land, horizontal development, and vertical construction under a single commitment. Alternatively, some lenders break the loan into separate tranches for land acquisition and development (the A&D piece) and construction (the C piece). The NAHB reports that credit conditions for builders have been tightening for fifteen consecutive quarters through Q3 2025, with lenders primarily reducing maximum LTV and LTC ratios.

What Is the Role of Bridge Loans in Subdivision Development?

Bridge loans give subdivision builders fast, flexible capital to acquire land or cover financing gaps between development phases. They are short-term loans (typically 6 to 24 months) that "bridge" the builder from one financial milestone to the next, such as purchasing a parcel before AD&C financing is finalized.

In subdivision development, bridge loans serve several strategic purposes:

1. Land acquisition speed. When a desirable site hits the market, builders may not have time to arrange full AD&C financing. A bridge loan lets them close quickly and then refinance into a longer-term facility.
2. Entitlement period coverage. Zoning approvals, environmental studies, and permitting can take 6 to 18 months. Bridge loans fund the holding costs during this period.
3. Gap financing between phases. If a builder completes Phase 1 lot sales but needs capital to begin Phase 2 horizontal work before the AD&C loan for that phase is ready, a bridge loan fills the gap.
4. Distressed or time-sensitive acquisitions. Builders purchasing bank-owned land or foreclosed subdivisions often need bridge financing to close within tight deadlines.

Bridge loan rates for subdivision land typically range from 8% to 12%, with 1 to 3 points in origination fees. LTV ratios generally cap at 65% to 75% of the current "as-is" land value. Because bridge loans are secured by the land itself, lenders focus heavily on the builder's exit strategy, meaning the plan to refinance into an AD&C loan or sell the entitled lots.

For a deeper look at how bridge financing works alongside horizontal infrastructure, see our guide on horizontal vs. vertical construction loans.

How Do Builders Use Spec Construction Loans in Subdivisions?

Spec construction loans fund the building of homes that do not have a buyer lined up at the time of construction. Builders use these loans to construct inventory homes within a subdivision, betting that the completed product will sell before or shortly after the loan term expires. This is one of the most common loans used by subdivision builders for the vertical construction phase.

A spec construction loan is typically structured as follows:

• The builder draws funds in stages as construction progresses (foundation, framing, rough-ins, finishes)
• A third-party inspector verifies completion of each milestone before funds are released
• Interest accrues only on the amount drawn, not the full commitment
• The loan term is usually 12 to 18 months
• The builder repays the loan from sale proceeds when the home closes

Within a subdivision, builders often carry multiple spec loans simultaneously. For example, a builder constructing 50 homes in a subdivision might have spec loans outstanding on 8 to 12 homes at any given time, starting new homes as completed ones sell. This rolling approach keeps inventory moving while managing carrying costs.

The NAHB survey found that effective rates on speculative single-family construction loans averaged 12.04% in Q3 2025, down from 12.82% the previous quarter. Pre-sold construction loans averaged 12.74% over the same period. Interestingly, spec loans sometimes carry lower rates than pre-sold loans because lenders may view the builder's flexibility to adjust pricing as a risk mitigant.

Need spec construction financing for your subdivision? Clearhouse Lending offers competitive spec and pre-sold construction loans. Get a quote today.

What Are Blanket Loans and How Do Builders Use Them?

A blanket loan is a single mortgage that covers multiple lots or properties within a subdivision. Instead of obtaining separate financing for each lot, the builder secures one loan against the entire parcel and then releases individual lots from the mortgage as they are sold or developed. This structure simplifies administration and reduces closing costs.

Blanket loans are especially valuable for subdivision builders because:

• Simplified financing. One loan, one set of documents, and one lender relationship covers dozens or even hundreds of lots.
• Partial release provisions. The loan includes a "release clause" that allows the builder to free individual lots from the blanket mortgage by paying a predetermined release price. The release price is typically set at 110% to 120% of the per-lot loan allocation, which ensures the lender is repaid faster than the collateral is reduced.
• Flexibility in build sequencing. Builders can choose which lots to develop first based on market demand, topography, or buyer interest without renegotiating the loan.
• Lower per-unit closing costs. Compared to obtaining separate loans for each lot, a blanket loan dramatically reduces legal and administrative expenses.

The release price mechanism is critical. For example, if a blanket loan totals $5 million across 50 lots, the per-lot allocation is $100,000. The lender might set a release price of $115,000 per lot. Each time the builder sells a lot, they pay $115,000 to the lender, and that lot is released from the lien. This "over-release" ensures the lender's remaining collateral always exceeds the outstanding loan balance.

Blanket loans are often used in conjunction with AD&C loans. The AD&C facility funds the horizontal development, and once lots are improved, a blanket loan might replace the A&D component while individual spec loans fund vertical construction.

How Do Takedown Schedules Work with Builder Financing?

A takedown schedule is the agreed-upon timeline and sequence in which a builder purchases or draws down finished lots from a developer or from their own land inventory. Takedown schedules are a core component of subdivision financing because they control the pace of capital deployment and directly impact carrying costs, lender risk, and project profitability.

Here is how takedown schedules typically function in a subdivision:

1. The developer and builder negotiate terms. The developer agrees to sell a specified number of finished lots to the builder on a set schedule, often monthly or quarterly. For example, a builder might take down 5 lots per month over 18 months from a 90-lot subdivision.
2. Each "takedown" triggers a purchase and loan draw. When the builder takes down a group of lots, they either pay cash or draw on their AD&C or takedown loan facility. The lender releases funds equal to the lot cost plus any allocated construction funds.
3. Absorption drives the pace. The schedule is tied to the builder's projected sales velocity. Builders who sell faster than expected can accelerate takedowns, while slow markets may trigger renegotiation or extension provisions.
4. Release prices apply. As discussed above, the lender sets a release price per lot that must be paid before the lot's lien is removed. This is tied directly to the takedown schedule.

Takedown schedules protect both the builder and the lender. The builder avoids carrying costs on lots that will not be built for months or years. The lender limits exposure by releasing capital in phases rather than all at once. According to Pro Builder, modern takedown schedules are designed around profitability rather than market-share pursuit, with builders acquiring lots in smaller, more conservative batches than during previous housing booms.

Use our commercial mortgage calculator to estimate carrying costs on different takedown volumes.

What Loan Is Best for Small vs Large Subdivision Builders?

The best loan structure depends heavily on the builder's scale, experience, and financial capacity. Small builders developing 5 to 20 lots typically need simpler, more accessible products, while large production builders with 100+ lots require sophisticated multi-tranche facilities.

Small Subdivision Builders (5 to 20 Lots)

Small builders often work with community banks or credit unions that offer:

• Single-close AD&C loans that cover land, development, and construction in one facility
• Individual spec construction loans drawn one or two homes at a time
• Personal guarantees as the primary credit enhancement
• Smaller loan amounts ($500,000 to $5 million)

Small builders may also partner with a land developer who handles the horizontal work, purchasing finished lots through option contracts or takedown agreements. This reduces the need for A&D financing and allows the builder to focus on vertical construction. For guidance on land financing, see our land acquisition financing guide.

Large Subdivision Builders (50+ Lots)

Large and national builders typically secure:

• Revolving credit facilities that allow repeated draws and repayments as homes are built and sold
• Multi-project AD&C lines covering several subdivisions simultaneously
• Model home financing as a separate carve-out within the overall facility
• Corporate guarantees instead of personal guarantees
• Larger loan amounts ($10 million to $100 million+)

Large builders also have access to capital markets and may issue bonds, securitize construction loans, or partner with private equity funds. The NAHB Housing Market Index showed builder sentiment ending 2025 in negative territory, reflecting the tighter credit environment that disproportionately affects smaller builders with fewer banking relationships.

How Do Builders Transition from Construction to Permanent Financing?

Builders transition from construction to permanent financing through two primary paths: construction-to-permanent (C2P) loans that automatically convert, or construction takeout loans where a new permanent lender replaces the construction lender at project completion. The transition strategy depends on whether the builder is holding the property or selling it to an end buyer.

Path 1: Builder Sells to End Buyer

This is the most common scenario in for-sale subdivisions. The builder constructs the home using a spec or pre-sold construction loan, and when the buyer closes, the buyer's mortgage pays off the builder's construction debt. The builder's lender is "taken out" by the buyer's permanent financing. According to the NAHB, 37% of builders used construction-to-permanent loans made directly to the home buyer in Q3 2025, with an average of 63% of homes financed this way.

Path 2: Builder Holds as Rental (Build-to-Rent)

In the growing build-to-rent segment, the builder completes construction and then refinances the spec construction loan into a permanent mortgage. Options include:

• DSCR loans that underwrite based on rental income rather than the builder's personal income
• Mini-perm loans with 3 to 5 year terms that bridge the gap between construction and long-term financing
• Agency permanent loans (Fannie Mae, Freddie Mac) for stabilized rental portfolios of 5+ units
• CMBS takeout loans for larger portfolios

Path 3: Portfolio Refinance

Builders who retain multiple completed homes can bundle them into a blanket permanent loan. This approach is common for build-to-rent communities where the builder plans to hold and operate the entire subdivision as a rental community.

For build-to-rent transitions, explore our bridge loan calculator to model refinance scenarios.

Frequently Asked Questions

What is the most common loan used by subdivision builders?

The most common loan used by subdivision builders is the AD&C (Acquisition, Development, and Construction) loan. This single facility covers land purchase, infrastructure development (roads, utilities, grading), and vertical construction of individual homes. AD&C loans represent the majority of builder financing tracked by the NAHB and offer the most comprehensive coverage of the entire subdivision development cycle.

How much down payment do subdivision builders need?

Subdivision builders typically need a down payment of 20% to 35% of total project costs, depending on the lender, the builder's experience, and the project's risk profile. Land acquisition loans generally require 25% to 30% down, while construction loans may require 20% to 25%. Builders with strong track records and existing banking relationships may negotiate lower equity requirements.

Can a builder finance multiple subdivision phases with one loan?

Yes. Many lenders offer revolving or multi-phase AD&C facilities that cover multiple phases within a single subdivision. The loan is structured with a master commitment and individual tranche draws for each phase. As homes in Phase 1 sell and repay the loan, those funds can be redrawn for Phase 2 construction. This revolving structure is particularly efficient for large subdivisions built over several years.

What credit score do builders need for subdivision financing?

Most lenders require a minimum credit score of 680 to 700 for subdivision construction loans, though requirements vary. Commercial AD&C loans focus more heavily on the builder's financial statements, liquidity, net worth, and track record of completed projects than on personal credit scores. Builders with fewer than three completed projects may face higher equity requirements or rate premiums.

How long does it take to get approved for a subdivision construction loan?

Approval timelines for subdivision construction loans typically range from 30 to 90 days. The process includes project review, appraisal, environmental assessment, title work, and underwriting. Loans involving raw land or complex entitlement processes may take longer. Builders can speed up approval by preparing complete project documentation, including plans, permits, budgets, and absorption schedules, before applying.

What happens if homes in the subdivision do not sell as expected?

If sales lag projections, the builder may need to request a loan extension, reduce the pace of new construction starts, or adjust pricing. Most AD&C loans include extension options (typically 6 to 12 months) for an additional fee. In severe cases, the lender may require additional equity or restrict further draws. This is why takedown schedules and conservative absorption assumptions are critical during initial underwriting.