For many people, particularly those that are new to the area of construction, owner builder construction loans can, at first glance at appear daunting and a bit scary. Once you understand both the industry and process however, you can quickly understand that they are loans that have been created for a particular purpose and need.
There are many different reasons that people undertake the process of becoming an owner builder. For some people, it is about saving money, for others it is about being in control of the project and making sure that you get exactly what you want without compromise. There are also many different types of owner builder construction loans and it is important to understand why you want the loan and exactly what features of the loan that are important to you.
One of the key features of owner builder construction loans is that you are able to borrow money in states – that is as you need it. This is usually accomplished by an inspection by a certified agent once each stage is completed. This means that the bank can be confident that an independent party has verified that the project is on track. This is an important element that often gives the bank or financial institution the confidence to invest in the project. It means they are aware pretty quickly if the project starts to go off the rails or substantially over budget.
Banks and other financial institutions lend money to projects in order to make money. Those who do specialise in the area of owner builder construction loans do so because they can charge a slightly higher interest rate to compensate for then increase risk that is often assumed to be inherent with owner builder projects. They will only take the risk of investing their money into their project if they are sure you are going to complete on time and on budget.
There are lots of different ways of making sure banks and financial institutions understand that your project is not going to fall in the proportion of owner builder construction loans that default or require more money to complete. One of the first ways is to document your experience in the industry and your proven ability to see a project through from start to finish. This may be able to be shown because you are in the industry already and have already completed similar projects, either for yourself or others. If that is not the case, you may be able to document your skills in project management through proven experience in other areas.
It is also important when applying for an owner builder construction loan to clearly document the project, with a particular emphasis on the final value of the project. In a standard building contract, you can add the value of the land with the value of the builders contract and come fairly close to the value of the completed property. This is not the case with an owner builder construction loan however because changes are the value you expect to pay for the building part of the project will be significantly less than its final value because of the work you have put in and the savings you have made as a result of being an owner builder.
When applying for an owner builder construction loan, there are many ways of proving to a bank what the true value of your completed home will be other than adding together the cost of construction and the value of the land. One way is to assess similar properties in the area. What price have they been selling for? If you are comparing comparable properties in comparable areas, you should be able to make a strong argument for your owner builder construction loan that the value of your property will be close to those. There are also other factors to consider for example the level of quality of your finishes, the level of detail in construction, whether or not it is designed by and architect. These things all make a difference to the value of your project and may help to make it easier to get an owner builder construction loan.