Owner builder home loans is a challenging yet fulfilling avenue that you can embrace to be able to make your dream homes a reality. However, homeowner building requires not only financing but as well as time, dedication, expertise and experience to be a success. This is the reason behind fewer banks offering owner builder home loans. Even with the limited financing options for owner-built projects, going through the process to be able to build your dream home is all worth it.
Building your own home without the right knowledge can be horrific. Intellichoice Finance would want to make the journey a successful one for you. We have compiled the Ultimate Guide to Owner Builder Home Loans to equip you with the knowledge and information that would make your owner builder home loan application a success. Most importantly, here are insightful tips that can make your owner builder experience a walk in a park worth remembering.
Owner Builder Home Loans: Ultimate Guide for Successful Application
How Much Mortgage Can You Borrow?
Your chances of getting an owner builder home loan approved are not guaranteed but are possible. Better chances of approval. Being able to manage a budget while managing a long-term and complex project.
Getting a pre-approval would give you a fair idea of how much you can borrow. You’ll be able to know the maximum loan-to-value (LVR) ratio a bank is willing to lend you. You can decide early whether this road in building your home is the right one for you.
Licensed builders can borrow around 80% of the construction cost. If you are not a builder but will seek the help of a licensed one to construct your home, you can borrow around 50%-70% of the construction cost. The more experience you are as a builder, the less risk a lender sees in you.
Why Do Few Banks Offer Owner Builder Loans?
Giving out a loan to a client has a lot of risks. Bad credit loans, for example, are hard to find and only non-conforming lenders offer such chances for people with bad credit. Banks measure the risks that each client poses.
Another challenge that comes with owner-builder projects is the possibility of drastic changes along the way. The initial plan may have been revised, or the construction schedule is not being met. Some construction can go over budget or delays and other issues during the construction that directly affects the cost of the project. On worst case scenarios, some projects remain incomplete – scenes most banks would rather not experience.
When entering the owner-built road to your dream home, you should weigh this possibility. Do you really need financing from a bank and would a bank see you fit as a borrower? Your experience and expertise as a licensed builder or hiring one with such credibility increases the chances of a loan approval. It also builds your confidence that your owner builder project will indeed be a success.
How Big or Small Can My Owner Build Be?
How big or how small your owner builder may be depending on your budget and the capacity of your licensed builder to deliver a small or big project. You can loan as much as $1,500,000 for small dwelling while bigger construction projects depending on your finances and assets.
Low Doc Construction loans also fall under the $1,500,000 maximum loan amount and will not require you to provide a source of income. However, for bigger projects, a complete set of financial documents may be required of you by your bank or lender.
Do You Need A Guarantor to Get an Owner Builder Home Loan Approved?
A guarantor may increase your chances of securing an owner builder home loan. It would be ideal to have a parent or a very close relative that is willingly interested in helping you out in securing a mortgage for your owner-built.
Having a guarantor with a good credit score allows you to secure at least 80% of your total project value. In some cases, you will not be required for a deposit, through the additional confidence a guarantor may be able to provide to the bank or lender that you are applying for an owner builder home loan.
The additional credit criteria that a guarantor provides can also help you secure better rates or lower deposits when securing a refinance, construction as when procuring investment properties.
Golden Rules for a Successful Owner Build Project
The challenge of an owner-built project does not only lies with the funding. The bigger part of the pie is the actual construction of the project. Even with careful planning, problems could go pop up anywhere down the construction road. Here are some Golden Rules you should live by to make your owner builder project a success.
Always have a contingency plan ready. As part of your preparation prior to applying for an owner builder home loan, you should have included at least 10%-15% of the total amount of your construction project to the total amount or value of your build. This amount serves as your back up plan in the event of a sudden increase in the prices of construction materials or any other scene that may affect the cost of your build.
Check your builder prior to application. There are ways to determine if your contractor is indeed a licensed builder or not. Working with an employee of the builder is way different from working with the actual builder. The equipment, manpower and expertise of the actual builder are incomparable to what a builder-employee can do. Always know the difference. You can check out this article to determine if your builder is indeed a licensed and reliable one.
Practice patience. Most banks would not approve a loan if the project is already starting. Owner-builder loans are released in drawdowns and each stage is definite. It would not be ideal to start ahead if you would want to proceed with the financial help from a mortgage. Wait for the process to finish and get a written approval before proceeding with your project.
Have a budget set aside. A contingency amount added on the total amount of your loan is within the loan. Thus, it is essential to have cash in hand that can be used to fund your project without waiting for a drawdown to be released. Most licensed and experienced contractors can finance a construction even without relying on the drawdown stages or the incremental release of your loan from the bank. However, if you are the builder of your own project, a considerable amount of cash would be essential to stay on track of your owner-built.
A successful owner-builder loan application depends on you and the broker that you will work with to complete the application. Most banks do now do owner builder home loans anymore. However, with Intellichoice, connecting with banks and lenders that do owner builder loans is a breeze. Take the first step with Intellichoice Finance.