Not everyone is as passionate about Owner Builder Loans as Jo King of Intellichoice
Not everyone is as passionate about Owner Builder Loans as Joanne King of Intellichoice, a Brisbane based company that specialises in obtaining finance for Owner Builders.
According to Jo, the client projects that give her the most satisfaction are the ones who have already tried to get finance themselves.
“I love it when clients come to us with a project that has been knocked back by a bank and we get the chance to submit it our way. So often it is just a matter of presenting it differently to show how much inherent value there is in the project,” she says.
After more than 31 years working in Finance, the last five specialising in Owner Builder Loans, there’s not much Jo doesn’t know about how to put together a proposal.
“One of the things we pride ourselves on is our ability to educate both valuers and banks about how the owner builder process works,” she says. “Because Owner Builder homes aren’t as common as those built under a standard building contract, banks and valuers often dismiss them without even considering all the facts,” she says.
Do a Google search for “Finance for Owner Builder Projects” and you’ll quickly discover that this is a service that many banks and financial institutions don’t like to handle.
To make the process even more difficult, many of the financial institutions that do lend to Owner Builders will only lend on a very low Loan to Value Ratio (LVR) – usually around only 50 or 60%.
That means that if you are looking to finance a property with a completed value of $500,000, you will only be able to get a loan for around $250,000.
The good news is that Owner Builder Loans with a LVR of 75% are possible as long as you understand the finance industry and that is where the loan specialists at Intellichoice come in.
Jo believes that a major part of the job is to mitigate the perceived risk to the lender.
“Sure, there can be certain issues around Owner Builder projects but on many occasions they can also present substantial value,” she says.
One of the issues is the way properties are often valued. A common technique is to add the value of the land or existing property to the cost of construction.
This valuation process, however can work against the Owner Builder.
Imagine two properties standing side by side with identical plans and identical land values.
House 1 is being constructed under a Building Contract.
The standard valuation process adds the value of the land or existing property (in this case, $300,000) with the value of the signed Builders Contract ($250,000).
Assuming values in the area and various other key criteria stack up, the valuer will add the 2 figures together ($550,000) and that becomes the amount the bank will lend against.
House 2 in our example is being Owner Built
In this case, the valuer will take the value of the land (again $300,000) but then only look at the proposed cost of construction (which because of the work and expertise the owner is putting in may be much lower, say $150,000).
Total value cost for this property may well be valued at $450,000.
The same house, the same land, but as far as the bank is concerned, one is worth $100,000 less than the other.
Jo sees it as her job to educate valuers and financial institutions that there are many other factors to take into account.
She and her team research information like earlier building quotes, costs to construct, as well as similar values in the area among other things to illustrate the real value of a property and to prove that the value of the property more than compensates for the risk.