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Owner builder home loans
Owner-builders can finance their home construction with a construction loan. But if you're not a qualified builder, you'll have a much harder time getting approved.
An owner-builder is someone who decides to construct their home themselves instead of contracting a licensed builder. Owner-builders who need a home loan can take out a construction loan, sometimes called an owner-builder home loan.
For most lenders, a key criteria for being approved for an owner-builder loan is certification as a licensed builder yourself. This is because they need reassurance that if they lend you this huge sum of money, you have the skills, expertise and experience to complete the project.
How much can owner-builders borrow?
A qualified owner-builder can generally borrow up to 80% of the property's value on a construction loan.
You could even borrow up to 100%, depending on the lender, if you have a guarantor and take out a guarantor loan. This is when someone is willing to offer their own property as security to back your loan.
Lenders are much more conservative if you're not a licensed builder. Most lenders won't lend you a dollar if you don't have proper certification; those that do, may only lend you up to around 60% of the property's value to minimise their risks.
What documents do owner-builders need to provide?
The specific documents vary lender to lender but generally you need to provide:
Council-approved plans. Your lender will need copies of council-approved building plans.
Cost details. This includes a detailed breakdown of construction costs, copies of quotes and estimates plus a payment schedule.
Quantity survey reports. You'll need a copy of your quantity surveyor's report and a soil test.
Insurance. Lenders require owner-builders to hold builders all risk insurance and public liability insurance.
How to maximise your chances of being approved
If you meet stringent lending criteria such as having enough equity, savings or a guarantor willing to offer security for the loan, you may have a better chance of being approved for a home loan application.
Effective budgeting. As part of your loan application, most lenders will need to see a cost estimate for your project. You’ll need to ensure the numbers are as accurate as possible, and you should always include a 10-15% contingency buffer. Unless you're a licensed builder, most banks won’t lend you more than 60% of the build cost, so it’s important that you don’t run out of funds midway through construction.
Pre-approval. It’s wise to seek pre-approval before entering an owner builder arrangement. Pre-approval will give you an idea of what your maximum loan-to-value (LVR) ratio will be, which can help you decide whether or not it’s the right decision for you.
Be patient. You’ll need to wait until your home loan is officially approved before you can start construction, and most lenders won’t approve your loan if you’ve already started the project.
Seek advice. Before you apply for finance, it’s a good idea to seek advice to determine how much you can afford to borrow and whether or not you’re likely to be approved for a home loan application. Speak with a financial adviser and accountant to help with your budgeting as well as tradespeople or project managers before commencing.
How do owner-builder home loans work?
Construction loans are different to standard mortgages. Rather than simply getting your loan approved and getting all the money at settlement, owner-builders receive funds in stages to cover various construction costs.
These stages are usually:
Foundations
Frame and exterior
Lock-up
Fit-out
Completion
The builder needs to provide evidence at the completion of each stage before the lender will unlock funds.
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Frequently asked questions about owner-builders home loans
If you're a licensed builder, you can generally borrow up to 80% of the construction cost for a full doc loan. If you're not a builder, you can generally borrow 50-70% of the construction cost, so you might need sufficient savings or a gift from a family member.
Some lenders are concerned about lending to owner builders because of the likelihood that you may go over budget or not complete the build. However, if you're a licensed and experienced builder, you may be seen as a less risky borrower.
If you're approved for an owner builder loan, the lender will release the funds to you as progress payments rather than in a lump sum as it would with a standard mortgage. As you complete each stage of construction, a valuer will assess the work and then authorise the lender to provide the next progress payment.
For an owner builder loan, you'll need to provide more documentation compared to a traditional mortgage, such as:
Richard Whitten is a money editor at Finder, and has been covering home loans, property and personal finance for 6+ years. He has written for Yahoo Finance, Money Magazine and Homely; and has appeared on various radio shows nationwide. He holds a Certificate IV in mortgage broking and finance (RG 206), a Tier 1 Generic Knowledge certification and a Tier 2 General Advice Deposit Products (RG 146) certification. See full bio
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Richard has written 529 Finder guides across topics including:
As an authority on all things personal finance, Sarah Megginson is passionate about helping you save money and make money. She is an editor and money expert with 20 years’ experience and an extensive background in property and finance journalism. Sarah holds ASIC RG146-compliant Tier 1 Generic Knowledge certification, and she's a regular media commentator, appearing weekly on TV (Sunrise, Channel 7 news, Nine news), radio (KIIS FM, Triple M, 3AW, 2GB, 6PR) and in digital and print media. See full bio
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Sarah has written 186 Finder guides across topics including:
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