An owner builder loan is suited to those who wish to build their own home. But an owner builder loan is not considered in the same way as a standard construction or building loan when you use a registered builder.
What Is An Owner-Builder?
An owner builder is defined as a person who builds their own home on their land, and who does not hold a building license. Anyone can become an owner builder but there are different guidelines set out for each state of Australia. Through your state government authority you must apply for a permit and in some states complete an owner builder course.
Owner-Builder Loans Finance
This is one of the most important aspects of the process. We can offer up to 60% of the end market value of your home for an owner builder loan. Bear in mind though, that lenders do add contingencies to your construction quotes. For example, if the total quotation for the project you are building is $250,000 some banks will add an additional 20% to allow for contingencies. This means they will assume a build cost of $300,000: this has the effect of increasing the deposit you’ll need.
How Do Banks Fund Owner-Builder Loans?
Banks will only release funds when they see works completed on the build. This means that it’s important to have funds available to help fund the project, to buy materials as they are needed, for example.
For this reason, our advice is always to maintain a good level of working cash to cover building works and contingencies.
What Are The Important Steps To Becoming An Owner-Builder?
There are important factors you must consider before applying for finance and ensuring that becoming an owner‐builder is right for you:
If you fail to plan then you plan to fail. Never rush this most important aspect of the process. Work out exactly what you want from your new home. Making changes later in the build will incur additional costs; you don’t want to end up as one of ‘those’ owner builders who ran out of money.
Don’t rely on rough estimates from builders, tradesman or hearsay from friends and family. You need to quote all aspects of the construction phase and add a contingency into these estimates. You must allow for cost of material fluctuations as it could be 6 months until you require those materials or trades. As a general rule, add 20% as we have never ever seen a build completed at original cost – never!
Running over budget can negate the cost savings of owner building in the first place. Why go through all that stress? Plus the banks may not lend you any more money and you’ll need to rely on family or friends or personal loans.
4. Owner Builder Training Courses
If you have no experience in the construction industry, are having difficulty budgeting, or simply have no idea what you are doing, we recommend you don’t become and owner‐builder. But if you have or you are determined to owner build, we strongly recommend you attend an owner builder course.
5. Over capitalizing
This is building the best house in the street, remember that as an owner builder loan you need to achieve a favourable valuation. Engage a suitably qualified valuer and for a few hundred dollars, and armed with your plans and block of land, they can give you a very good estimation of the expected end value in a report format with evidence of recent sales similar to your home.
6. Council Contribution
Check with the local council prior to embarking on an owner build to see if they require a building bond or cash guarantee that you will complete the home within a certain time frame. You’ll need this in cash, as banks will not lend for this purpose.
7. Loan Requirements
Make sure you qualify for finance first, and that you have enough funds to complete the owner builder process. Make sure your income is sufficient and your credit history is clear. Above all don’t start building until you have finance in place: it’s much harder to finance half way through a build.
8. Speak to Building Loans Australia
There are not a lot of finance options available for owner builder loans. Banks and lenders are wary of this market: if you fail to complete the home, it is difficult for the bank to sell.
Obtaining an owner builder loan will depend on your deposit, the area you wish to build, loan amount required, and your credit worthiness. This is a very specialised area of the construction finance market – one in which we have particular expertise. Contact us today, and we’ll start the process of pre‐qualification for the loan you need.