Every adult dreams of owning their own home. Some people may decide to buy a house and call it home while others may choose to buy an empty parcel of land and build their dream home on it. The latter is a great option if you want a home that is built to match all your needs. When thinking of home ownership, you have to identify the right financier as well as the right builder. It is important to note that there are two types of builders in the country. These are registered builders and owner-builders. Registered builders are licensed contractors who are hired by clients to build a residential property on an existing piece of land. Owner builders, on the other hand, are landowners who choose to build their own homes. Equipment Loans Online offers the best deals on excavator finance loans and construction loans for owner-builders.
Who is an Owner Builder?
This is a landowner who takes responsibility for construction work undertaken on their land. Owner builders procure building plans, present them to the local authorities for approval, apply for building permits and supervise the building process. An owner-builder is a landowner who organizes the necessary trades and oversees the construction process of their home to meet all the building standards.
Convincing lenders to lend you money to build a home is not easy. This is because you do not have the requisite experience, so you are likely to make mistakes. Correcting those mistakes can be costly, which means that the approved budget will not be enough. As a result, the project may stall. If you decide to hire a registered builder, most mortgage lenders will be willing to offer 100% funding because their money will be in safe hands. After all, registered builders normally provide clients with warranty insurance to protect them from insolvency, stalling of the project, and substandard work. The good news is that owner-builders can still get funding for their construction projects.
What You Need to Know About Owner-Builder Financing
The first thing you need to know about owner-builder loans is that most lenders can only offer up to 80% funding. This is because of the risks involved. Once you have approved building plans, the necessary permits, and an estimate from a quantity surveyor, most lenders will preapprove loans of up to 80% of the project cost. This is a low loan-to-value ratio (LVR) when you consider the fact that some lenders can offer well over 100% financing for projects undertaken by registered builders.
This means that you will have to come up with a down payment of 20% to bridge the difference. If the estimated cost of construction is $200,000, you must have $40,000 in your bank account before the lender can approve your application and disburse funds.
Please note that once your application has been approved and the lender issues a commencement letter, you will be required to start the project with your 20% contribution. Once the 20% is depleted, the lender will disburse the remaining 80% of funds to ensure the project is completed successfully and on time.
Cost of Owner Builder Loans
There is a common misconception that owner-builder loans are more expensive than traditional mortgages. Well, the truth is that these loans come with added risk because the owner does not have any building experience. To minimize their risk exposure, lenders usually lower the LVR and raise interest rates. However, many lenders in the market offer owner-builder loans at the same rate of interest as other loans. That is why shopping around is crucial before submitting your application.
Benefits of Building Your Own Home
There are many reasons to take the owner-build approach to home construction. For starters, you can save a lot of money. Registered contractors usually charge a lot of money for their services. By building your own home, you can significantly reduce the overall cost of construction. The savings you make will allow you to buy better fixtures, appliances, and fittings for your home. Thirdly, owner-builders usually have a lot of control and flexibility because they can make changes cost-effectively during the construction process. The resale value of these owner-built houses is also much higher because buyers know that these homes are built carefully and to perfection by someone who wanted to call the property their home forever.
It is important to note that the requirements for owner-builders differ from state to state. Depending on the state you wish to build the home in, it is recommended you check the government’s website to learn more about the requirements. This will help you decide on whether it’s better to hire a registered builder or take the owner-builder route. Whatever the case, it helps to have a reputable lender by your side.
Once you’ve decided to owner-build, be sure to ask lenders to preapprove you. This will tell you the maximum amounts different lenders are willing to offer for the project. If the amount is well below the cost of construction, or you cannot come up with the required deposit, you may want to consider hiring a registered builder instead.