Owner builder loans

Owner builder loans

Owner builder loans are for people who want to construct their home without engaging a licensed builder. If you have talked to some banks or lenders then you may have been told that owner builder loans are not available. But that is only partly true, most banks and lender do not lend to owner builders but others do.

Lenders that have owner builder loans have strict approval requirements that must be met. So unless there is a good reason for being an owner builder it is much easier to use a licensed builder and use a standard construction loan.

There are many good reasons why you may want to be an owner builder and therefore use an owner builder construction loan. So if you have your heart set on owner building and want to finance your project you have come to the right place, read on and contact us to get your owner builder loan started.

Most banks and lenders don't offer Owner Builder construction loans. This is because owner builder loans are considered high risk. Banks and lenders have observed that loans to owner builder are at higher risk due owner builders changing their plans, going over budget or not completing the project. It is estimates that less than half of owner builders finish their project on time and on budget. This is a significant risk for the lender as if they need to repossess the property and sell it they may not get as much for the unfinished property as the loan amount.

However, some lenders will approve owner builder construction loans. Oak Laurel construction finance brokers can help you to compare options and get an owner builder construction loan.

The maximum Loan to Value Ratio available for a full doc owner builder loan is 80%. However, most other lenders will only allow 50-70% of the property value.

Furthermore, for higher loan to value ratio lenders can usually want a high amount (20% of the build cost, excluding the land cost) of funds for contingency to account for potential cost overruns during the construction.

Lenders will want you to show that you will complete the construction on time and on budget. The lender will want to see your building permits (development approval or construction certificate), building plans, your owner builder licence and a detailed construction cost estimate and project time schedule.

You will need to get quotes from trades people for the different parts of the construction, it is recommended that you source several quotes from different trades people as this will make sure that you are quoted market rates and are not overpaying. Furthermore, some lenders will need you to provide several quotes during the loan assessment process.

Most lenders will provide a cost estimate template which can act as guide when costing your project. Once this is completed the lender’s valuer or quantity surveyor review the costs estimates and indicate if they are realistic.

If you do not have any experience in the building industry you may want to appoint a building estimator to assist with this process of accounting for the materials and costs associated with your construction project. The building estimator’s report can then be used by the lender’s Quantity Surveyor (QS) to determine the value of the project.

Your lender will also want your project timeline. This details the timing of each stage of the construction, and includes planning and preparation for your project, the foundation stage, framework and roof, lock up stage, completion of fitting and fixtures and final completion. Typically, a lenders expect to see the project completed within 12-18 months.

The lender may also ask for a summary (mini resume) about you as the owner builder and the key people you are employing to complete your construction project.

If you have little or no experience in the building industry then and you have a complex project the lender may want a building project manager to oversee the project.

The owner builder how does the construction loan process

Once all of the required documentation is submitted to the lender, the lender will assess the loan. Once the lender has approved the loan 'subject to valuation' the lender will then get their valuer or quantity surveyor to review the cost estimate. If the cost estimate is approved the lender will then issue a commencement letter.

You as the owner builder will need to use your own funds prior to the lender releasing the loan funds.

Owner builder loan progression payments

Each lender will have a progression payment schedule with each building stage that they would like you to follow and will only release funds appropriate to the stage of the build that you are in.

With standard construction loans, the lenders generally obtain an independent valuation to confirm that the work is at the appropriate stage before releasing the funds. The release payments to owner builders is a similar. At each stage, the lender will send out a quantity surveyor to produce a report on the construction progress and current property value.

The lender will then release funds when they are satisfied with the progress report. Quantity surveyor progress reports can be costly and should be considered in the budgeting and costing of owner builder projects.

Owner builder loan pre-approval

By getting an owner builder construction loan pre-approval you can be confident that the construction project you are planning will be able to be completed within the amount of funds that you will have.

By getting a loan pre approval, you then know what loan amount you will be able to get, at what loan to value ratio and other conditions of the loan.

This will also help you determine if an owner builder loan the right option for you or if using licensed builder and a standard construction loan will be a better option.