How owner builders can increase their shot at getting a home loan

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As an owner builder, lenders will make you jump through hoops to qualify for finance, which is why it pays to know a thing or two about how you can maximise your chances of being approvedOwner builder home loans

Australian lenders are conservative when it comes to providing funds to owner builders. They tend to be sceptical of your ability to not only manage a budget but also manage a complex and long-term construction project. For them, it’s risk galore.

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.

Find out how you can stand out from the crowd when you submit your owner builder loan application.

How to maximise your chances of being approved

  • 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 much can I borrow?

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.

Why is it so difficult to qualify for a loan?

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.

How does an owner builder loan work?

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.

What documents will I need to supply?

For an owner builder loan, you’ll need to provide more documentation compared to a traditional mortgage, such as:

  • A copy of your owner builder permit
  • Your project plan
  • A construction cost estimate
  • Your budget
  • A copy of your builder’s insurance

Speak to a mortgage broker about financing your dream home construction

Rates last updated November 21st, 2017
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Aussie Home Loans
Aussie Home Loans
Aussie is one of Australia's leading financial service providers, having won The Adviser’s Top Mortgage Broker award for the last 3 years. They charge no appointment fees and can meet at a time and place which suits you.
Up to 20 lenders Enquire Now More info
Mortgage Choice Home Loans
Mortgage Choice Home Loans
Mortgage Choice is one of Australia's largest independent broker services. They have over 28 lenders on their panel, including the big four banks. 28+ lenders Enquire Now More info
iConnect
iConnect
iConnect has hundreds of loans available through more than 40 lenders in Australia to choose from to find the home loan that is right for you.
40+ lenders Enquire Now More info
Finsure
Finsure
Finsure has loan offers from over 35 lenders, including major brands, and will work to find a home loan that suits your property needs.
Over 35 lenders Enquire Now More info
eChoice Mortgage Brokers
eChoice Mortgage Brokers
When you do business with eChoice you will be given your own home loan manager to help you select a loan. 25 lenders Enquire Now More info
Pepper Money
Pepper Money
Pepper specialises in providing fair home loans to those who are credit impaired - from small defaults all the way up to discharged bankruptcies.
Credit impaired home loans Enquire Now More info

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Belinda Punshon

Belinda is a journalist here at finder.com.au. Specialising in the home loans and property sections, she is passionate about helping Australians improve their financial wellbeing.

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