Owner builder loans are available for those that will build their own home without engaging a licensed builder.
In order to comply with this, the individual must submit building plans to the local council and be granted the appropriate building permits, which include DA and CC.
Once these plans have been approved for construction, a client should apply to the local government authority for an owner builder license.
The finance aspect as an owner builder can be complex and difficult and one should consider the following:
Should I seek pre approval or loan parameters before considering an owner builder loan?
This is strongly advised to all people looking to get involved with an owner builder loan. The reason is simple. Building is a complex exercise requiring good coordination and technical skills. Lenders are aware of this and the possibility of over run costs due to lack of experience managing this type of project. Hence, lenders are not generous when it comes to lending at high LVR’s on an owner builder loan.
What is the maximum a lender will lend on an owner builder loan?
The maximum LVR one can raise as an owner builder at full doc is 80%. This can be found with only 2 lenders in Australia. Other lenders will generally accept 50-70% LVR.
What work do I need to show that I am capable of raising an owner builder loan?
Lenders require you to create an owner builders cost estimate before you start construction. This is research of what trades are required and their costs. This should be put together as a cost estimate. A bank’s valuer or quantity surveyor will confirm the cost estimates as adequate.
What provisions must be put in place to safe guard against cost over runs on an owner builder loan?
High LVR lenders like to factor in a contingency part in the lending. This means they prefer that a part of the fund (5% of the total building price) be kept aside to cover any unforeseen expenses.
When I build, how does the funding process work?
Once a cost estimate is approved and verified by the banks valuer or QS, the lender issues a commencement letter. As the lender will lend only to a maximum of 80% of the hard cost, the client must contribute 20% of the funds by way of cash.
Hence the construction will initially be funded by the client as he will contribute his funds first to 20% of the costs. The lender will eventually complete the project by providing the 80% of funds required for the project to be complete.
Are owner builder loans more expensive?
Because there is a limitation to the amount of lenders who provide them at high LVR’s people assume they must be more expensive. As a general rule, they are usually priced the same as other construction loans, yet there are a small number of lenders who price them more expensive.
At Mortgage Providers, we know where to find the cheapest and most flexible construction loan lenders. We can find this for you when you obtain an independent builder, or even if you are acting as an owner builder. Our staff have published journals and articles on these subjects. Talk to us for more information.