5 To Do's for a Successful Owner Builder Construction Loan Application

by Joie Gahum Digital Marketer
Defining an Owner Builder

An owner-builder entails accepting the responsibility of a licensed contractor and managing your own undertaking in home construction. The owner-builder construction takes on a number of advantages which include significant savings, total control, and sense of satisfaction. Nonetheless, assuming the responsibility of an owner-builder takes on a lengthy process where each step is required and mandated by law. 

How to Become an Owner Builder?

To become an owner builder, you should first get an owner-builder permit. You can apply for an owner-builder permit online if you meet the eligibility requirements below. Or you can also submit your application in person by booking an appointment at the nearest service centre at your area. 

Eligibility Requirements: 

  • Should be 18 years old or older
  • Must share in ownership, freehold interest or a term of more than 3 years in the land on which you plan to develop the home. 
  • Must have a current general construction induction training card or known as a white card. 
  • Finish an authorized owner-builder program if the proposed project is over $20,000 in value. 
  • Pay all necessary fees.
  • Avail of an owner builder construction loan

Loan companies are tough and very conservative when it comes to an owner builder construction loan. They usually are skeptical of the borrower's capacity to manage a project and take on the complexities of managing a lengthy construction project and therefore considers this type of loan as a risk. 

You may have a better chance of obtaining an approval from your bank if you have enough savings, equity, and a guarantor to further provide security for the loan. Here are five things you can do in order to get a better chance at getting a loan approval. 

Five To Do's for a Successful Owner Builder Construction Loan Application

1. Seek for proper assistance. Prior to applying for financial help, it’s a wise decision to get professional financial advice to find out how much you can actually afford to borrow and also whether you’re going to be approved to get an owner builder construction loan. Talk to a financial adviser and also an accountant to assist with your budgeting. You may also want to talk to tradespeople as well as project managers prior to starting the project.

2. Prepare all required documents. Owner-builder loans will require more documents when compared to a standard home loan. The requirements will include the following:
  • Owner-builder permit
  • Project plan
  • Project cost estimate
  • Budget. Use a budget planner calculator to help you track your cash flow. 
  • Builder’s insurance

3. Cost Estimate. As part of the owner-builder loan application, loan companies will require a cost estimate for your proposed project. You’ll have to make sure the figures are as precise as is possible, and you ought to always add a 10-15% contingency barrier. Unless of course if you're a licensed builder, loan companies will allow a maximum of about 60% of the construction cost. It is then crucial to have funds to support construction.

4. Seek Pre-approval. It's always a smart decision to seek pre-approval prior to engaging in an owner builder set up. Pre-approval gives you a clear idea of what your highest loan-to-value (LVR) ratio is. This will also help you decide if the owner-builder route is the best way to own a home.

5. Practice patience. Patience is the key to being approved. You’ll have to delay until your loan is formally approved before you begin construction. Most loan companies will not approve your construction loan if the project has already commenced. 

How Much Can an Owner Builder Borrow?

A licensed builder can typically borrow as much as 80% of the building cost considering a full doc loan. An owner-builder can borrow from 50% to 70% of the building cost.

Why is it hard to be eligible for a construction loan?

Many loan companies worry about lending to owner-builders due to the probability that there could be over budget on the project or not being able to finish the construction. On the other hand, a licensed building contractor can receive a better favor from the banks and loan institutions as a result of their years of experience and better knowledge. 

How do owner builder loans function?

Once an owner-builder loan had been granted, the loaning company will release funds in progressive payments as opposed to lumping sum payments than regular home loans follow. As each stage of construction is completed, a valuer from the bank will look into the development of the construction before approval of the next progress payment. 

An owner-builder construction loan can be a real challenge considering that not all loan companies are confident in the ability of owner-borrowers. Thorough understanding of the process and the requirements of the loan will help you take a big step forward towards obtaining approval. Apply for the necessary documents and other additional requirements that can support your application. Hard work, research, and professional assistance can help you qualify to finance your home construction project.  

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About Joie Gahum Advanced   Digital Marketer

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Joined APSense since, October 17th, 2016, From Melbourne, Australia.

Created on Jun 21st 2018 02:02. Viewed 873 times.


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