Getting financing as an owner builder can sometimes be difficult – only with the wrong people and the incorrect approach in applying. You can still maximize your chances of getting approved, despite how stringent and tough lending criteria can be for most owner builder home loans today. Continue reading to learn more.
Lenders and banks have become very conservative when it comes to owner builder mortgages. They see it as too risky and the worry of an unsuccessful or income construction makes it skeptical for banks to proceed with such applications. Buying a real estate is way more different than an owner-occupied construction loan.
Most banks would require enough equity, savings or a guarantor that increases security on your loan, are factors that may help increase your chances of being approved for a loan. However, the average Aussie will have a hard time complying to all these requirements.
You can still stand out and get approved with an owner builder loan application. Here are some tips you can do to increase your chances of a guaranteed approval.
Create and appropriate your budget effectively
What makes banks and lenders hesitant with owner builder loan applications are the possible changes in the costing of your project. Some may tend to overspend, or the licensed builder may have a hard time keeping up with the expenses while waiting for drawdowns to be released. Ensure that your estimates are as accurate as possible. Contingency is another important factor that you should include in your estimate. If you are not a licensed builder, you can expect no more than 60% of your build cost as the maximum amount of loan that can be approved by your lender.
Consider getting pre-approval
Getting a pre-approval before entering an owner builder agreement would give you an idea on how much you can get in terms of the loan amount. Having an idea on the maximum loan-to-value ratio the bank or lender might approve you for a mortgage. This can help you decide if you can indeed handle the extra amount that you may need to be able to work on an owner build.
In a pre-approval, you will be able to know the loan repayment terms of your mortgage as well as extra repayments that you may be required of when approved. Fees and charges apply for some terms on your loan too. You will get a better idea on this through a pre-approval.
Through a pre-approval, you can also determine if you can avail other types of mortgages instead. There are different types of loans you can avail in the event that you see yourself unfit or needing a different kind of loan instead.
Seek expert advice
It would be ideal to talk or seek advice from someone knowledgeable when it comes to applying for owner builder mortgages. An Intellihcoice mortgage broker can guide you in understanding the process of applying for an owner build as well as explicit advice you on how you can improve the chances of getting approved. Apart from taking your hand throughout the process, a loan specialist can also seek the best deals and loan features that work well with what you need and what you can afford.
Talking with a loan specialist can also help you understand home loan repayments as well as other aspects of your loans such as offset account, stamp duty and other small details such as interest-only repayments or variable rate mortgage. They will also help you determine the different objectives you should set your eye on when applying for an owner builder.
Speaking with your financial adviser or accountant can also give you an idea of how much you can afford and what you can do in terms of your personal finance to be able to afford a mortgage application. They can also advise you in budgeting and inform you about areas in your finances that you can improve.
4 Basic FAQs Answered for Owner Builder Mortgage Applications
Requirements for Applying
You will need to facilitate your lender, bank or loan specialist with your owner builder permit, project plans, and cost estimates. Your budget and copy of your builder’s insurance are also required in your application. Other documents will be required by other banks and lenders. Get a loan specialist to make the work faster and less stressful on your end.
How much can you borrow?
A licensed builder can borrow more compared to those who are now. Eight percent of the total construction cost for a full doc loan can be availed by a licensed builder, while those who are not can get anywhere from 50%-70% of the total construction cost. If you are not a licensed builder, you might want to save first prior to applying for an owner builder loan.
Are there still banks that offer owner builder mortgages?
At present, there are quite a few banks and lenders who still carry owner builder loan products. Most of them are leaned into believing that going over budget or not being able to complete a build. A licensed builder is considered as less risky borrowers, but most banks would still likely offer owner builder loans in their financial products.
That is what makes Intellichoice different from other financial services. We are connected to several banks and lenders that are still happy to provide an owner builder mortgage for you. Intellichoice find ways, and we make sure that our way is favorable, economical and just the right for you.
After getting approved, what happens next?
After an owner builder mortgage approval, the lender will release the funds to you in progress payments and not in lump sums. Each stage of construction, a valuer will assess the work done and if approved will authorize the lender to release the next drawdown payment.