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Owner Builder Home Loans

Did you know that most banks won't finance a home construction unless it's by a licensed builders?

If you are building your own home, then you may encounter difficulty funding your project through a bank. We solve your problems with getting the right loan. Owner builder home loans are our specialty!  For more details on owner builder finance or how the home building system can benefit you in your next building project, speak to one of our mortgage brokers at 1300 55 10 45.  

Your home may be one of the most important purchases you will ever make.

It is a big decision and one that may have a long term impact on your financial strategy.

Owner builder mortgage is especially designed for people who want ot build their own home and often the banks and lenders will use the property as security for your mortgage.  Most of the time, it's all too hard for the banks; they find it a high risk and the process daunting.  Intellichoice LOVE providing this type of loan because our team come from a building/farming background and we know how incredibly rewarding it is the build your own home they way you want it.  We know how to guide you through the process of stages of the loan application.  We will advise you on how to provide the right estimates for your loan.  

We don't stop there!  Through our extensive knowledge of decades of experience, we make the loan application and approval process as simple as possible so that you can get moving on your dream.  

We have tied up with one of the major mortgage lenders in Australia to offer owner builder finance when used in conjunction with our owner builder the owner builder system. We can offer owner builder finance that works with your circumstances. Owner builder loans are available in QLD, NSW, VIC, WA, TAS and SA.

Owner builder loans are available for people who wish to take on building their home without engaging a licensed builder. In order to comply with this, one needs to submit his building plans to his local council, and be granted the appropriate building permits, which include DA, and CC.

Should I seek pre approval or loan parameters before considering an owner builder loan?

You should seek pre approval before entering into an owner builder arrangement. The reason is simple, building is a complex excerise requiring good co ordination and technical skills.

Lenders are aware of the complexity owner builders face, and the possibility of costs over runs. This comes primarily from in-experience with managing this type of project. Hence most lenders are not generous when it comes to lending at high LVR’s on an owner builder loan.

By getting a pre approval, you will have a good idea of what your maximum loan amount could be and at what LVR terms. This will help you gauge if doing an owner builder construction loan will be viable or resort to doing your construction under a licensed builder and enagaging a licensed builder to construct your home where you could borrow at a higher LVR.

What is the maximum a lender will lend on an owner builder loan?

The maximum LVR one can raise as an owner builder as full doc is 80%. This can be found with only 2 lenders in Australia. Yet most 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 a owner builders cost estimate before you start construction. This is a research of what trades are required and their costs. This should be put together as a cost estimate, by yourself. In many respects, a lender will assist by providing you a cost estimate template which can act as a strong guide, but it is important to remember that your project is could have its slight variations. Once this is completed, a bank valuer or possibly quantity surveyor will confirm the costs estimates as adequate and realistic. Your owner builder cost estimate is different than a licensed builder home loan where a licensed builder supplies a fixed price building schedule.

What provisions must be put in place to safe guard against cost over runs on an owner builder loan?

High LVR lender’s like to factor in a contingency part in the lending estmimate. This means that they prefer that a part of the funds be kept aside of the total building price to cover any unforeseen expenses. Depending on the lender, the contingency could be anything between 10% of the of total construction costs, 20% of total construction costs.

When I build, how does the funding process work?

Once a cost estimate is approved and verified by the banks valuer or QS, then the lender issues a commencement letter. As the lender will lend only to maximum of 80% of the hard cost, then a client must contribute 20% of the funds by way of cash.

Hence the construction will initially be funded 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 owner builder loans at high LVR’s people assume they must be more expensive. 

Let’s imagine for a moment that you are ready to build your home. You have a deposit saved and you know which area you want to buy into. You may have already owned a home before and sold it and this time you are going to build the exact house you want. No more compromises for you! At this point you really have 2 choices to make. The first is to go with a registered architect and builder. The second is to make the decision to become an owner builder and in order to do that, you need to take out an owner builder loan.

There are many things to consider when deciding whether or not an owner builder project and therefore an owner builder loan is for you. The first is to determine what the advantages would be for you.

There are a number of advantages to becoming an owner builder and getting an owner builder loan. The first is that it is possible, by going down the owner builder route to save lots of money.

The cost savings of becoming an owner builder come about because the owner builder takes the place of coordinating the project. Instead of passing control over to a builder (who takes a percentage to compensate for the extra work involved) the person who owns the home is in charge of that. That is one of the main differences and it is one of the main reasons why an owner builder loan is fundamentally different to a standard home loan.

Because an owner builder is in charge of the project, banks and other financial institutions consider owner builder loans to be less secure than a loan which is being managed and controlled by a qualified and experience builder. Statistically this is correct as owner builder projects do have a greater likelihood of either going over budget or time.

Just because banks consider owner builder loans to be less secure than standard home loans or construction loans doesn’t mean they are impossible to get. The secret to getting owner builder loans is to find an experienced and qualified broker who know which banks and financial institutions deal in this type of loan.

A good broker will also be able to include information in your owner builder loan application that will illustrate the strengths of the project. The loan application will include information such as your past success with similar projects, any experience you have within the building industry, information about a subcontract you have taken out with a registered builder who will help steer you through the construction process. All of this information adds up and makes the project a lot more attractive to banks.

There is another thing that banks and other financial institutions look at when assessing how viable an owner builder loan is. They look at the final value the project will be worth once the entire project is completed. This is another area where an experience broker can also help get the owner builder loan approved. Many banks automatically assess the final value of a property by adding together the cost of the property and the cost of construction. In the case of an owner builder loan, the value of the finished property may be significantly higher than this however because the cost of construction on a owner builder property is often well less than the actual value. A good broker will be able to illustrate this to the bank by looking at similar properties in the area to provide a more accurate reflection of value.

Owner builder loans are an area that require input from someone with expertise in the area. If the project is right, owner builder loans can make owner builder projects possible cost effective but it is important that you understand all the implications that go with them.

The challenge for an owner builder is to demonstrate to the lender the "intrinsic" value you bring to your project.  Intellichoice has developed a unique approach to solving this dilemma.  We work collaboratively with you to demonstrate the optimal end market value of your property, which is the key to maximising your borrowing for your construction project.  Through this approach, Intellichoice has a track record of obtaining lending at 80% of land value and up to 100% of construction costs, based on the end market value.

If you have already commenced your "finance" journey you will have identified there are very few financiers within Australia who provide owner builder loans.  Owner builder lending makes up less than one percent of all loans.  If you approach one of these lenders it can be difficult to find an "expert" within the institution who can guide you through the financial aspects of your owner builder construction project.

This gap in the mortgage market is a legacy of lender caution created by owner builder projects not being completed within budget and within reasonable timeframes.  Hence a well planned and executed owner build has a huge potential to create wealth.

Over the many years that Intellichoice has been delivering lending solutions for owner builders, we have identified a myriad of reasons you would elect to owner build encompassing:

 

·      Saving significant amounts of money

·      Having control over the quality of the build

·      Getting a larger home for the price of a smaller one

·      Making use of your project management skills

·      Making use of  your trade

·      Getting to select the trades' people who work on your home

·      Being able to draw on the skills of  your friends and family

·      The satisfaction of completing your project

Whatever your motivation, at Intellichoice we appreciate an owner builder will end up with a home for a significantly reduced price and this dovetails into a lower mortgage with reduced monthly  repayments and increased equity in your home.

As an owner builder you may well be on an extreme learning curve around the construction and management aspects of your project.  Having to concurrently invest enormous amounts of time in researching and understanding owner builder finance can be a distraction diverting your attention away from the "passion" of your project.

At Intellichoice we have invested heavily in understanding the finance space for owner builders and our experience is much larger than words on a page.  We see our role as being more than sourcing an owner builder loan for youAt Intellichoice, we know where to find the cheapest and most flexible owner builder loans. We can help you with the steps necessary to obtain this type of loan.

For more details on owner builder finance or how the home building system can benefit you in your next building project, speak to one of our mortgage brokers at 1300 55 10 45.

Tips when applying

Tip #1

Speak to us early, when you decide to owner build.

Tip #2

Compare quotes from different builders; take notice of inclusions.

Tip #3

Make sure the builder has a valid license.

Tip #4

If you're not sure which building company to trust, always check with the Master Builders Association and the or Housing Industry Association.

Tip #5

Make sure your builder has all the necessary insurance policies.

Tip #6

Look at previous homes your builder has completed.

Tip #7

Ask your builder how long the construction process will extend for. Remember, you’re paying interest on the progress payments for your mortgage throughout this time, so you need to know how long it will take.

Tip #8

Before your bank finalises the last progress payment make sure you insure the property.

Bad Credit Tips

Tip #1

Ensure you have contacted us to arrange for a credit check.

Tip #2

Moving house?  Make sure your address is changed for bills.

Tip #3

Set up payment reminders.

Tip #4

Choose good passwords and pins for all your banking.

Tip #5

Be mindful of your budget when shopping online.

Tip #6

Collect and scan all of your bills, statements and docs for your advisors to see.