Owner Builder Bank Loans: How To Get Finance When You’re Building Your Own House

There’s a misconception that when you build your own house, you’ll find it harder to secure finance from the bank than if you hire a building company.

That was before Home Together.

One of the most important aspects of the Home Together process is making sure you get your loan approved. Without funding, it’s impossible to start and you’ll be hard pressed to find contractors who’ll work on good will.

This article will prepare you for what you can expect when you’re looking for your loan as you build your own house, and how working with Home Together will help you. Let’s start with some Frequently Asked Questions – click through for the answers!

The reason lenders feel more confident financing people who’ve hired a licensed builder is that they trust a builder to estimate the budget for the project and stick to it during the build. Owner builders are seen as a risk because they might not complete the project, or could run into unexpected costs that an experienced builder wouldn’t.

Statistics have shown that a lot of owner builders run out of money or fail to budget effectively, resulting in unfinished projects. Lenders only want to invest in finished builds so that they’re guaranteed to get their money back – which is why Home Together’s here to help.

Any lender needs a guarantee that your build will go as outlined in your building plan. When owner builders ask for a loan without a proper plan in place, it’s not a good start. When you build with Home Together, you’re ready to begin your preliminary checklist as soon as your financing is approved. These preliminaries have been designed to get you to the same point you’d have reached had you handed over the controls to a builder.

You also have a Home Together consultant’s support and advice on your side as you start the financing process. This is the stamp of professionalism financial institutions need before they lend, and it’s what owner builders are often missing when they build alone.

Every financial institution differs, but by planning your build to the required detail and securing the necessary insurance and approvals, most lenders will offer you 60% of your build costs. This figure may be higher in certain circumstances, which financial institutions will consider on a case by case basis.

Knowing when to start the financing process is extremely important to the success of your build. If your building or renovation project is fairly standard, it’s wise to get as many things in place as you can before consulting a lender to increase your chances of being approved on the spot.

If your build is boutique, on a larger scale or specialist (calling all Grand Designs fans!), we will work with you and your financier from earlier in the process, to give them a chance to develop a relationship with you and better understand of your dream. That way, they’ll have more confidence in plans that would have normally been handed over to another building company.

What will happen in my first meeting with a lender?

From your very first consult, it’s important to give your lender multiple reasons to have faith in your project and your ability as an owner builder. At this point, it’s all about preparation and a plan for how your build will go once you have finance. You’ll be able to assure your lender you already have the following preliminaries in place, or are ready to get them once approved:

Owner Builder FInance

If you can come to your first finance meeting with these already checked off, you’re in business. Your lender will recognise that you’ve commenced your project as a building company would have, and will be ready to discuss your payment plan.

Getting approved, denied or…

From here, your lender will typically take one of the following actions in response to your request.

Approval

Congratulations! Your project is financed. Because every institution is different, the percentage of your overall cost will differ too. A starting point for owner builders as set by our mortgage broker, Buyer’s Choice, is 60% of the entire project cost. If you get approved but it isn’t the amount of funding you require for your build, ask for recommendations for other lenders.

Rejection

A rejected application is not the end of your plans to build independently. At this point, many owner builders panic that they have a block of land or house they need to renovate and rush to their local building company so they can just get something on the way.

Use your first rejection to evaluate your application. Is there more you could have in place? Perhaps you could start locking in some of your first supplier and contractor selections with the Home Together team. You can also talk through the reasons why you weren’t approved with the lender and ask for recommendations for other companies who would be more likely to approve your project.

Progression payments

Another congratulations is in order! Being granted progression payments mean that the lender has agreed to finance your build, one stage at a time. The lender will send out a qualified surveyor to your build at different stages, which you will agree upon before you get started. If the lender is satisfied, they will release the next round of funding. Some owner builders find progression payments frustrating and inhibiting, but with Home Together, they can be worked into your building plan. Keep in mind you’ll need a source of cash flow to start your project, as most lenders will require you to use your money first. The banks will reimburse you in arrears once the each milestone is completed – which is where people can get stuck.

As long as you plan your build with precision and schedule payments for suppliers and contractors around the progression payments, there’s no reason this option won’t work for you.

 

Approved Building Plans

So, you’re saying it IS possible to get funding as an owner builder?

That’s exactly what we’re saying. Some leading financial institutions have adapted to the trend of building independently, and what’s more, they’ve done their research. They know more and more people who come into their offices will be building their own house and that they need funds, one way or another. They know that building with a licensed builder doesn’t always mean a set budget or finish date. People building their own houses is proving to be more than a trend, but lenders still have misgivings about financing owner builders without a plan in place.

We designed Home Together so you have licensed builders in your corner and a plan in motion, without losing control over your build.

If you’re ready to build, it’s time to get financed. Fill out the following form and our team will get in touch with you to help start your funding process.

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This article was written with Rohan from Buyer’s Choice. We’ve worked with Rohan for over five years to help our clients secure working loans for their building projects. We highly recommend getting in touch with Rohan when you want to get financed, so give him a call or organise a meeting through our team at Home Together!