The real story about Owner Builder Finance
Both Sabine and Matt started to speak at the same time.
Sabine smiled at Matt over the table “you first..”
“I’m not sure….” Matt started hesitantly “but I think I might have found the perfect piece of land that we could build on.”
Sabine laughed. “Really? Where?
“Not far from work. It has an old knockdown on it now but the land is perfect. Nearly all flat…enough space to put in a pool….. perfect for kids……”
Sabine laughed again. “How funny,” she said. “My news is kind of along the same lines…kind of.” She paused for a moment. “I’m pregnant.”
The next day, Sabine and Matt headed off to inspect the block of land and it was indeed just what they were looking for. A good size, level, and the asking price were within their budget.
“Let’s just put an offer on the land and deal sort out the owner builder finance just for constructing the house,” Matt said. “We’ve got enough savings to cover the land – and if we don’t move fast, someone else might get it Lots of people get loans without anything like the kind of deposit we have.
Sabine wasn’t so sure. “I’ve heard owner builder finance can be tricky,” she said maybe we should talk with a broker first?
Which way should they go?
Option one
Matt and Sabine use their deposit on the land they have fallen in love with and wait until the dust settles to sort our the finance for the owner builder finance.
Financing the project becomes a total disaster. Because they have invested their entire savings into the land, they have nothing left to contribute to the build. It is very rare for a bank or financial institution to provide funds for more than 80% of the cost of the build.
Option two.
Although it is tempting to rush in Sabine and Matt hold off and research a broker who specialises in owner builder loans. They put together a proposal for the banks (not under any financial pressure as they haven’t yet committed to anything) and were able to choose from several different options.
Quick Facts on Owner Builder Finance
The main difference is that the process of payment. As an owner builder, you will be required to pay a deposit when you order materials and then finalise your accounts upon delivery (unlike a professional owner builder.)
This means you will require a large percentage of your budget (sometimes 50%) at the start of the building project.
For an owner builder project, funds are usually advanced in five progress stages.
It is important to note that lenders will only pay out once the stage has been fully completed. Before a stage is paid out, a valuer needs to sign off on completion. It pays to be very clear about exactly how completion is defined at each stage.
Follow the adventures of Sabine and Matt as they set out on the challenge of becoming owner builders on our facebook page.
