get an Owner Builder Loan
I have had many clients come to me after unsuccessfully trying to get an owner builder loan from their bank or lending institution. Now you are going to find out how to get an owner builder loan.
The bad news is that lenders regard owner builders as high risk as the finished home is used as the security whilst repaying the loan. Owner builders don’t have a good track record of finishing homes on time or budget. This leaves the lender without an asset to secure their financial interests in case you default on your repayments. Professional builders are under contract to complete the home for a fixed cost and reasonable time frame. The pros can still go broke though but that is another story.
The good news is that there are some Banks and Institutions that will lend to owner builders…….but they still require some convincing!
If you can prove to the lender that you have thoroughly planned your project and give them some real data for their securities people to review then you will be in a lot better position to secure your loan.
The even better good news is that in most cases 100% of your construction costs will be covered by your loan and not the standard 80%.
Yeah right! Don’t believe me then read on……….
It is widely known that Professional Builders work on a profit margin of around 30% to build your home. That is 70% actual build cost + 30% profit ( and also allows for stuff ups which usually are frequent)
If you get a loan with a bank it is common to secure a loan with 80% Loan to Value Ratio. That is you must have at least 20% of the total cost of your project covered out of your pocket.
Owner Builders can sometimes be slugged as high as 50% LVR. That is alright if you are cashed up.
The Banks quantity surveyor’s determine what your home is worth when completed BEFORE they lend the money. They work on current industry price guides and includes the builders margins.
So therefore if you can owner build your home for 30% less than current industry price and you have secured a loan on 80% LVR then you will have covered 100% of your build costs.
Confused? Look at this simple example;
Bill & Mary want to owner build their dream home. They have saved up $20k as a deposit for a loan. They already own their land.
They have had their plans to build approved and a builder has quoted them $100k to build it.
The bank will lend them 80% of the required amount to build their home. This equals an $80k loan with their 20% deposit. Easy done!
Now Bill & Mary decide to owner build. They recieve quotes from licenced tradesmen and do some great on-line bargaining for materials and fittings for their home.
The total cost they estimate is $70k to build their home. They prove this to the bank and the loan is approved…… but the loan is still approved for the $80k.
Bill and Mary build their home but it does cost them a little more than they estimated because they decided to put granite in the kitchen.
The final cost of their home is $80k…Win…. It is better than they originally planned….Win…. They only have $60k left to repay….Win… The bank values the home at $100k….Win!!!
I know this sounds too simple so therefore everyone should be doing it! Well owner building is not for everyone. See my earlier blogs on the subject.
The systems I use to help you manage your project are industry proven and simple.
If you want an owner builder loan then it is certain that you will need to convince your lender you know what you are on about. Planning! Ever heard of the 6 P’s ?
Proper Planning Prevents Piss Poor Performance!
Before you decide to owner build check out my website for heaps of free information that will bring control to your project.
If you are still having difficulty getting an owner builder loan then contact me and I will give you my best free advice.