Getting an owner builder finance home loan

If you are considering becoming an owner builder and project managing the construction of your new home or major renovation, make sure you are fully prepared for the owner builder finance or construction loan process.

Below are some things you should take into consideration if you are thinking of becoming an owner builder and applying for owner builder finance.

• Don't rush through your planning phase in an effort to get to the actual construction of your home. Many owner builders have made this mistake only to run out of money with a half-built home or do not realise the full costs of being an owner builder.

• You need to understand that the planning and financing stage is just as important as the actual construction phase.

• Don't rely on a cost estimator to put together your budget for your new home construction or renovation, as it won't be accurate enough. Set out your owner builder budget and get quotes for everything so you are clear on the full costs of owner building your home. If you are using the owner builder system to build your new home, the quotes booklet lets you get quotes for everything so you can easily compare it apples to apples.

• We strongly recommend that you take the time to put a solid budget together, based on actual quotes from local sub-contractors and material providers. Make sure you base these quotes on your actual blueprints so you can do a proper comparison. If you are using the Home Building System (HBS), you can get the contractors to do a breakdown of the costs and materials needed so you can compare with other quotes.

• Don't try to build the biggest house in the neighbourhood. Your construction loan's appraisal will most likely be inadequate to get the file through underwriting, because there won't be any comparable properties in your neighbourhood.

• Make sure you understand the construction appraisal process and requirements before you finalize your house plans and/or select your land. If you can't get a solid appraisal, you may not be able to get an owner builder finance or construction loan approved.

• Get an owner builder home loan that has a single closing to cover the land purchase, construction phase, and conversion to permanent financing.

• Please note that it may be difficult to secure owner builder finance if you have poor credit history. The lending criteria for construction loans are stricter than normal residential home loans, as the mortgage lenders don't have assurance of a completed home in the event of default or repossession. If you have bad credit history, we recommend that you first look at repairing your credit profile and put a savings plan in place before you owner build. The mortgage brokers at Intellichoice can provide you with more details on how to get started.

• Don't start building or renovating your home until your owner builder loan has been confirmed and closed.

• Don't hurt your credit score while you build your own house by running up credit card debt or missing home loan repayments because you are strapped for cash. Ensure you have enough funds for everyday expenses while renovating or building your home.

If you want to become an owner builder, follow these tips so you have an idea on what it means to be an owner builder and some of the hurdles you may have to face trying to get owner builder finance. If you would like more information about owner builder finance or the owner builder system, speak to one of the mortgage brokers at Intellichoice on 1300 55 10 45.