Save thousands as an Owner Builder
An owner builder is someone who elects to build a home without entering into a fixed price building contract with a registered builder. There are regulatory requirements which must be adhered to and you can gain an understanding of these by visiting your local council.
One of the most critical elements of owner building is to commence with the end in mind; meaning you need to know what the finished product will look like and put together a well thought through plan of how to get there. A real challenge for owner builders is the temptation to make multiple variations along the way. This creates two major pitfalls. It can blow your timeline and your budget.
Owner building can be stressful, particularly if you are building a family home and your family is waiting patiently in rental accommodation on the expectation you will be finished by Christmas, so solid planning is a must. Making changes to your construction plans along the way can turn Christmas this year into Christmas next year.
READ MORE: How Does Reverse Mortgage Work?
Making changes to your construction plans can also put enormous pressure on your budget. Sourcing an is not easy. Read any owner builder blog and the torrid experiences of sourcing a loan and you could be put off even considering owner building.
Understanding the requirements of an owner building loan and getting it structured correctly in the first instance is mandatory.
There are very few lenders in the Australian market place who even have a policy which permits lending to owner builders. You may stumble onto one of those lenders, however keep in mind that maybe 1% of their total lending is for owner builders and so an individual lending specialist within the financial institution may rarely or never have organised lending for an owner builder.
Owner building is considered more risky than the traditional construction loan where the construction will be regulated by a fixed price building contract. With an owner builder there is no guarantee of completion and to mitigate this risk a lender will cap the loan to value ratio (lvr) at a very conservative lvr - usually around 60% of the end market value or 80% of the cost of land plus the cost of construction. As an owner builder you may not have to pay for components of the labour or the project management and so you may actually be disadvantaged by an 80% lend against the costs of your land and construction cost. Being aware of this nuance can assist you to look more closely at the lender's offering.
Owner builders also need to be aware that the loan will not be advanced as a lump sum, but rather will be made as staged or progress draws. This means as an owner builder you will need to outlay to cover the costs of material and trades people's costs and then make a claim against the lender to be reimbursed. The lender will organise an "as is" valuation before they pay out against your claim. This is where the valuer determines how much work has been completed to date and how much work is still to be done. The lender will always keep enough money back to ensure completion of the property. Without careful planning and adherence to their cost estimate and building plans, an owner builder can very easily run out of funds.
READ MORE: Owner Builder Loan This Pandemic: Is It Worth It?
My advice is always to use specialists to organise your loan. These specialists are mortgage brokers who specialise in sourcing owner builder loans. Speak to broker who does not specialise in this area and they will suggest owner builder lending is all too difficult and that you would be better off paying a registered builder to construct your home.
A mortgage broker who specialises in owner builder lending will understand the documentation a lender requires. More critically, they will know the importance of structuring your owner building lending correctly and will be able to calculate what your contribution will be. Always keep in mind a lender will require you to make your contribution before you can use any of their funds. Hence knowing what this figure is and that you can afford it, is critical.
In short using a specialist to organise your owner builder loan allows you to concentrate on the construction and not the finance and can reduce your stress.
Right now you may be questioning why you would ever consider being an owner builder ..........that's easy - a well-planned owner builder project can deliver savings of 30 to 35%. Imagine saving a whopping $150,000 to $175,000 on a $500,000 construction. That's equity which you can use towards achieving your financial dreams!
###
Darin Hindmarsh is the founder and CEO of Intellichoice Finance, a broking firm based in Brisbane. He's been providing financial and broking services in the past 18 years. Hindmarsh is also finalist in the 2020 Australian Mortgage Awards - Pepper Money Broker of the Year – Specialist Lending. To jumpstart your home loan application, visit their home loan online application page today.!
One of the most critical elements of owner building is to commence with the end in mind; meaning you need to know what the finished product will look like and put together a well thought through plan of how to get there. A real challenge for owner builders is the temptation to make multiple variations along the way. This creates two major pitfalls. It can blow your timeline and your budget.
Owner building can be stressful, particularly if you are building a family home and your family is waiting patiently in rental accommodation on the expectation you will be finished by Christmas, so solid planning is a must. Making changes to your construction plans along the way can turn Christmas this year into Christmas next year.
READ MORE: How Does Reverse Mortgage Work?
Making changes to your construction plans can also put enormous pressure on your budget. Sourcing an is not easy. Read any owner builder blog and the torrid experiences of sourcing a loan and you could be put off even considering owner building.
Understanding the requirements of an owner building loan and getting it structured correctly in the first instance is mandatory.
There are very few lenders in the Australian market place who even have a policy which permits lending to owner builders. You may stumble onto one of those lenders, however keep in mind that maybe 1% of their total lending is for owner builders and so an individual lending specialist within the financial institution may rarely or never have organised lending for an owner builder.
Owner building is considered more risky than the traditional construction loan where the construction will be regulated by a fixed price building contract. With an owner builder there is no guarantee of completion and to mitigate this risk a lender will cap the loan to value ratio (lvr) at a very conservative lvr - usually around 60% of the end market value or 80% of the cost of land plus the cost of construction. As an owner builder you may not have to pay for components of the labour or the project management and so you may actually be disadvantaged by an 80% lend against the costs of your land and construction cost. Being aware of this nuance can assist you to look more closely at the lender's offering.
Owner builders also need to be aware that the loan will not be advanced as a lump sum, but rather will be made as staged or progress draws. This means as an owner builder you will need to outlay to cover the costs of material and trades people's costs and then make a claim against the lender to be reimbursed. The lender will organise an "as is" valuation before they pay out against your claim. This is where the valuer determines how much work has been completed to date and how much work is still to be done. The lender will always keep enough money back to ensure completion of the property. Without careful planning and adherence to their cost estimate and building plans, an owner builder can very easily run out of funds.
READ MORE: Owner Builder Loan This Pandemic: Is It Worth It?
My advice is always to use specialists to organise your loan. These specialists are mortgage brokers who specialise in sourcing owner builder loans. Speak to broker who does not specialise in this area and they will suggest owner builder lending is all too difficult and that you would be better off paying a registered builder to construct your home.
A mortgage broker who specialises in owner builder lending will understand the documentation a lender requires. More critically, they will know the importance of structuring your owner building lending correctly and will be able to calculate what your contribution will be. Always keep in mind a lender will require you to make your contribution before you can use any of their funds. Hence knowing what this figure is and that you can afford it, is critical.
In short using a specialist to organise your owner builder loan allows you to concentrate on the construction and not the finance and can reduce your stress.
Right now you may be questioning why you would ever consider being an owner builder ..........that's easy - a well-planned owner builder project can deliver savings of 30 to 35%. Imagine saving a whopping $150,000 to $175,000 on a $500,000 construction. That's equity which you can use towards achieving your financial dreams!
###
Darin Hindmarsh is the founder and CEO of Intellichoice Finance, a broking firm based in Brisbane. He's been providing financial and broking services in the past 18 years. Hindmarsh is also finalist in the 2020 Australian Mortgage Awards - Pepper Money Broker of the Year – Specialist Lending. To jumpstart your home loan application, visit their home loan online application page today.!
