Can I Use My Normal Home Loan to Be an Owner Builder?
There are many reasons why it pays to use a qualified and experienced broker to help you get an owner builder loan. We have many examples of stories where people have been terribly disappointed because they got a loan (or tried to) using brokers who were not experts in this field.
Susan and James are experienced renovators. They are currently living in their own home and have many renovations behind them. They are satisfied with their home but have decided they should use their skills and experience to buy a property, renovate it and install tenants to help pay it off so that they can start to build a series of long term investments. In the past, the couple have always used builders to manage the project, but this time they want to owner build. They found a small property they felt confident they could add value to. They thought they could use the equity they had built up in their home loan to borrow for their investment property project but when they applied for the loan at their bank, they discovered that their bank didn’t even have a product which would work for an Owner Builder Construction loan. So they tried several other banks but kept getting rejected as they weren’t aware of the right way to present documentation to allow the project to proceed. Just as they were about to give up, however they discovered a website that gave them information about Owner Builder finance and who to present their information the right way.
Not only is it vital to present the obvious information such as investments, equity and salary when applying to banks for an owner builder loan, it is also important to present the financial details of the project in such a way that it is clear it is realistic, professional and achievable. The bank wants to be sure that you have done your budget properly and accounted for all the things you can reasonably expect to occur as well as allow a margin for things that you can’t really foresee without a crystal ball. The bank also wants to know that you have developed a sensible and realistic timeframe for the project, which allows for things like bad weather.
It is important when becoming an owner builder that you have the ability to draw down the loan in stages. You also need to understand that a representative from the bank would need to physically check that each stage had been completed satisfactorily and that until all the boxes had been ticked and finalised, you won’t receive the funding.
As you can imagine, without the complete amount about a project, it could very easily be derailed as there could be a situation where the tradespeople were unwilling to keep working on the project until they were paid and the bank was unwilling to pay until the final details of the stage were completed. It is also important to understand that once the project was satisfactorily completed, it would be a good idea to consolidate the loan and put it somewhere else. They could potentially add the debt into their existing home loan so they only have one consolidated debt.
When people first start out investigating the possibility of managing a project themselves as owner builders, they aren’t aware that there are many elements associated with it in addition to just obtaining a licence and the skills to physically manage the build.
There are specific financial implications that can make the difference between a successful project that comes in on time and on budget and one that doesn’t. Many people find a skilled and experienced broker and are able to obtain the money they required through a specialised owner builder Loan. Although it is always easy, they managed to complete the project and get tenants into the first of their rental properties so they could take the first step in successfully building their investment portfolio.
Many people take the road of becoming Owner Builders and with the right education and experience manage to find it a very lucrative and successful experience. There is lots of information out there and it really is just a matter of taking the time to educate yourself. Talk with people who have done it. Talk with builders. Talk with brokers and find out the answers for yourself.