Updated
Pre-sold lot development financing helps a developer fund the work required to deliver residential lots under a builder agreement. A useful financing review connects four things: the land you control, the improvements you must finish, the cash available during construction, and the purchases that repay the debt. Jaken Finance Group reviews the proposed structure individually, including requests involving land equity, builder deposits, seller financing and limited guarantees.
Start with the project you are actually delivering
A builder may have agreed to purchase every lot, yet the developer still has months of work before the first closing. Streets, drainage, utilities, inspections and recording conditions can all sit between today’s land and tomorrow’s sale proceeds. The financing needs to follow that sequence.
Describe the current physical condition accurately. If roads and utilities remain unfinished, say that the project will deliver finished lots. Calling the present collateral “finished lots” can obscure the remaining construction risk and create confusion over valuation. Include dated photographs and a concise statement from the civil engineer about completed and outstanding work.
Separate horizontal development from the houses the builder will construct. The developer’s agreement may end when accepted lots transfer. In another project, the same sponsor might develop the lots and build the homes. Those exits require different budgets and repayment plans. The A&D financing overview explains the broader acquisition and development stages, while this guide focuses on selling lots under a builder agreement.
Read the buyer’s obligation before relying on the headline
“One hundred percent pre-sold” is an opening description. The financing analysis needs the signed agreement and its amendments. Identify the legal buyer, the seller, the property description and the conditions that make a purchase due. A recognizable parent-company name does not answer whether that parent guarantees a subsidiary’s obligations.
Some agreements require purchases when specified conditions are met. Others give the builder options or termination rights. Public homebuilders themselves disclose different land-control arrangements. For example, Taylor Morrison’s 2025 annual report describes option arrangements under which lots are controlled without an obligation to purchase and deposits may be forfeited. That disclosure illustrates why the actual contract matters; it does not describe your particular agreement.
Ask counsel to summarize the operative provisions in ordinary language. Which conditions must the developer satisfy? Can the builder extend a purchase date? What happens after an uncured default? Is the deposit the seller’s only remedy? Keep the summary beside the executed document so the financing team can verify each statement.
Turn the takedown schedule into a cash schedule
A takedown is a purchase of one or more lots from the development. Record each batch’s quantity, expected date, price and conditions. If different lots have different prices, preserve those differences. An average price is useful for a first discussion, but it can hide the effect of premium lots selling early or lower-priced lots remaining later.
Identify whether the schedule uses fixed dates, a period after lot completion, or a rolling notice process. A date that depends on acceptance cannot safely be treated as unconditional cash in a forecast. Show both the intended date and the event that starts the clock.
The financing maturity needs its own line. A builder’s ability to delay purchases does not automatically extend your loan. Model a delayed first purchase and a delayed final purchase while keeping debt maturity fixed. The lot takedown guide explains how that mismatch can create a cash requirement even when the project’s projected profit remains positive.
Classify the builder deposit precisely
For each deposit, record the original amount, current holder, permitted uses and credit mechanism. Evidence of a deposit in escrow is different from evidence of funds available in the project account. A letter describing a deposit should agree with the contract and account records.
Consider a hypothetical $6.4 million lot-sale contract with a $960,000 deposit. If the entire deposit is credited against the purchase price, total contract revenue remains $6.4 million. It does not become $7.36 million. The timing of cash changes, but the sale price has not increased.
Now suppose $480,000 is available to spend and $480,000 remains in escrow until closings. The forecast should show the available money at the outset and the escrow releases when allowed. It should also deduct the full deposit credits from the builder’s closing payments. Our calculator uses that convention and displays the cash movements separately. Your documents may require a different allocation, which must be reflected in the final underwriting model.
Establish the remaining development scope
The budget should distinguish work already completed and paid for from work still required. A lender reviewing a new facility needs to know what the facility must accomplish, not only what the entire project once cost. Include outstanding invoices and retainage even when the associated work is physically complete.
Organize site work into quantities and prices: earthwork, wet utilities, dry utilities, roads, drainage, testing and related tasks. Keep off-site obligations visible. A small amount of unfinished off-site work can control acceptance of a much larger development.
Permitting also belongs in the schedule. The EPA construction stormwater overview describes federal permitting considerations for land disturbance; the applicable authority and permit must be confirmed for the actual site. Budget the measures required by your approved plans and permits, including ongoing maintenance, inspections and closeout work.
For more detail, use the existing guides to horizontal costs and bonding and entitlement and platting.
Explain self-performed work in a way a lender can review
Owning equipment and employing a field crew can give a developer greater control over scheduling. The financing package should still make the cost assumptions inspectable. List labor hours, wage burdens, materials, outside subcontractors and equipment charges separately.
Clarify whether an equipment charge reflects an actual payment, an internal allocation or a proposed reimbursement. Do not count an owned machine’s full value as both project equity and a new construction expense. If a related company performs work, identify the relationship and show the contract and payment terms.
Support the budget with quantities, supplier quotes, comparable completed work or an independent estimate. Explain who certifies progress and how invoices, lien waivers and inspections support draws. The project packaging guide includes a dedicated section for developer-contractors and the records that make their execution plan easier to assess.
Reconcile the land contribution and seller debt
Land already owned can represent a substantial investment, but it is not a bank balance available for next month’s payroll. Document its acquisition cost, ownership, existing debt and the proposed valuation basis. Keep the amount requested as recognized equity separate from the amount originally paid.
A seller note remaining in place is a repayment obligation. Its proposed treatment depends on its documents and the senior financing requirements. Describe whether it is secured or unsecured, its interest rate, maturity, payment schedule and any contemplated standstill. Calling it subordinate does not explain all of those terms.
If profits from a prior phase will fund this phase, show when that money becomes available, what must be repaid first, and which entity owns the proceeds. A pending sale and completed cash transfer are different stages. Read the land equity and seller financing guide before presenting the combined sources as a completed equity contribution.
Size the facility around both cost and timing
An initial financing request should state the requested commitment and explain the anticipated peak outstanding balance. They can differ when lots sell before construction finishes. Also distinguish cumulative advances from the balance remaining after repayments.
Define every ratio. A percentage described as LTC needs a numerator and a cost denominator. Does the numerator include only senior principal, or all debt? Does the denominator include original land cost, financing costs, contingency and selling costs? Using the same label for different calculations makes otherwise sound proposals difficult to compare.
The OCC commercial real estate lending handbook provides supervisory context on development lending, interest reserves and repayment analysis. It is not Jaken Finance Group’s private lending program matrix. A transaction’s quoted structure still depends on the actual review and capital source.
Use the calculator to expose questions early
The example below assumes land is already owned, construction costs are spread evenly, and two builder purchases occur at month-end. Change the assumptions to see how deposits, draws and payoffs affect cash. The calculation is a planning model, not a loan quote.
Pay attention to three outputs before focusing on profit. Peak debt shows the largest modeled exposure. Additional cash needed shows the largest modeled shortage, including spending before a month’s sale closes. The monthly schedule shows whether a maturity payment falls before the expected proceeds.
YOUR LOT DEVELOPMENT MODEL
Follow the money through each takedown.
Start with this hypothetical 40-lot example, then enter your assumptions. All results are available without an email.
Additional cash needed includes costs paid before month-end sales. Negative cash is an unfunded gap; it is not an assumed loan advance.
Base and downside
The downside delays both purchases, increases remaining hard and soft costs, and lowers sale prices. Loan and seller-note maturities stay fixed.
| Result | Base | Downside |
|---|
Monthly cash and repayment schedule
| Month | Cost | Draw | Interest | Lots | Sale cash | Senior paydown | Seller payoff | Senior balance | Cash before sale | Ending cash |
|---|
Calculation method and limits
Remaining hard costs, contingency and soft costs are spread equally over your construction months. The proposed draw share applies to those costs. Advances stop at the commitment or maturity. This is a non-revolving facility: repayment never restores availability.
Senior interest uses the balance after the month-start advance, before month-end repayments, at annual rate divided by twelve. It is paid from cash. Include any funded interest reserve in the initial advance. Seller interest accrues simply until its payoff month.
The entire builder deposit is credited pro rata against lot prices. Only the available portion enters cash at closing; the rest is released from escrow with each sale. Actual escrow restrictions and release prices may differ. Carry continues through the last modeled obligation. No tax, lender eligibility decision, appraisal or contract interpretation is calculated.
Peak LTC here is peak senior balance divided by modeled total economic cost, including original land cost, remaining work, selling costs and financing carry. A lender may use another eligible-cost denominator. Assumed accepted land equity is shown separately and never creates spendable cash.
Keep an editable A&D workbook
Get the formula-driven monthly schedule, capital-source reconciliation and project summary. Preview the workbook. Calculator entries stay in this browser unless you choose to include them in a project inquiry.
Understand what a release payment does
When a lot is sold, the lender must release its lien on that lot. The agreed release payment determines how much principal must be repaid. It may differ from the sponsor’s preferred allocation of sale proceeds or the lot’s average development cost.
Test each batch individually. Net sale cash is affected by deposit credits, selling costs and any escrow release. If the required senior payment exceeds that cash, another permitted source must cover the difference. Do not assume the seller note can receive money at the same time unless the senior documents permit it.
The remaining lots matter as well. After the first batch sells, review the debt still outstanding, unfinished work, remaining deposit and the next purchase date. A strong first closing should not leave the rest of the project with an unexplained funding shortage. This is one reason a full monthly schedule is more informative than a single project margin.
Check shared infrastructure between phases
A completed earlier phase is useful context, but the new phase may depend on improvements that have not yet been accepted or paid for. Identify shared stormwater facilities, access roads, utility capacity and any off-site work needed for both phases. Assign each remaining obligation to a budget and responsible entity.
Review whether selling the first phase changes access, easements or construction rights for the next one. If the builder will own adjoining property while the developer continues working, explain how the construction team will reach the site and maintain required services. The purchase agreement and recorded rights should support that plan.
Also identify warranties, maintenance periods and outstanding bonds from the earlier phase. Those obligations may continue after its lots sell. A current-phase budget should explain any shared cash requirements without assuming that an earlier closing ends every responsibility on the site.
Prepare for a change in the builder’s plans
Even a familiar buyer can request a schedule change. Model what happens if the first purchase slips while the crew continues working. Identify which costs can pause and which continue regardless: insurance, taxes, permit compliance, loan interest and essential site maintenance.
A second scenario can reduce sale prices while leaving debt obligations unchanged. That scenario does not predict a renegotiation. It helps you understand how much room the capital structure has before additional money is needed.
Explain the fallback in practical terms. Are other builders interested in the same lot product? Would a replacement buyer require different improvements? How would a change affect the current deposit or contract? A fallback is most useful when it names the decision, evidence and time required, rather than assuming immediate replacement sales at the original price.
Request a review with an organized first package
Start with a short summary containing location, lot count, current stage, requested financing, proposed guarantees and the two key deadlines: an initial indication and actual closing. Attach or prepare the sources-and-uses schedule, monthly forecast, builder agreement, remaining budget and sponsor background.
State unresolved items directly. A budget awaiting updated utility pricing can still be discussed if the missing amount and decision date are visible. A contract amendment under negotiation should be labeled that way instead of presented as executed.
The initial inquiry should make the next conversation productive. Jaken Finance Group can then identify the issues requiring further documentation and determine whether the requested structure merits additional review. Availability, pricing, leverage, guarantee requirements and closing conditions remain transaction-specific.
Download the free builder contract checklist, prepare the relevant documents, and request an A&D project review. You can include saved calculator assumptions deliberately when submitting the inquiry. The workbook download alone does not submit your project for financing.