Owner Builder Financing
Start With Your Local Bank
A hot topic for owner builder's is owner builder financing. "How do I go about figuring how much home I can afford to build?" Well, if you plan on financing your project, there is a simple process.
First, go to your local banker and explain your goal. Ask them to evaluate your financial position and give you a specific amount they will be able to finance.
Owner Builder Lenders
You could also check with lenders that deal specifically with owner builder financing. Often, however, it is best to approach your banker to start with. You have established a relationship with them and that will hopefully have a positive impact on the amount and terms of the construction loan.
Have You Purchased a Lot?
Remember, if you do not already own an acceptable lot to build on,the loan amount must cover not only construction, but also the cost of purchasing and possibly developing that lot. Finding out what you can afford is important. SEE OUR PAGE ON LOT SELECTION.
For example: If your lender says you may finance $300,000.00, use $270,000.00 as your budget limit for land and construction. If you then pay $50,000.00 for your lot, you will then have a construction budget available of $220,000.00. Knowing this, you can then check with the local building department, local building contractors and/or subcontractors to see what building costs are and what you can afford to build.
Run these numbers against the comps in the neighborhood where you plan to buy your lot and see if it makes sense to build there. You may find that isn't the right place for your project.
This planning process is critical for your success. You never want to partially complete your home and run short on funds. If everything up till now passes muster, it's time to forge ahead. If not, don't push it. Be patient and continue with your research until you find the lot, plan and financing that make building your own home worthwhile.
Because many local banks are wary of financing owner builders, a market has arisen online to address the void. There are several online lenders that specifically cater to the owner builder. Usually they will put some basic requirements in place before approving the loan. For example, most owner builder financing is dependent on having an lender approved consultant. Some lenders require it be a "preferred" consultant. This gives the lender some assurance that an experienced contruction manager is monitoring progress. Sometimes these consultants may have a referral agreement with the bank as well.
While we encourage the owner builder to manage the project on their own, they may still benefit from having a construction manager assisting them with the project. This is especially true if it means the owner builder will recieve a better interest rate on their loan.
Reviewing the programs available should be part of your preconstruction process. Always check with your local bank first, but shop around for better rates and easier terms from online lenders. There are a number of very reputable firms providing owner builder financing.
Do You Need to Budget for a Consultant?
Construction to Permanent Loans
A somewhat newer development in owner builder loans is the construction to permanent loan. This allows an easy transition from your construction loan phase to a mortgage. In the past, once construction was complete, the owner builder would have to re-apply for a mortgage, possibly at a much higher rate. Often, depending on the owner builder's credit history and the lender they are dealing with, this is still the case. The construction to perm loan is something the owner builder should definately discuss with the bank or mortgage company.
As with any contractual agreement, study the fine print very closely. Unfortunately, a handshake just doesn't cut it anymore. Avoid adjustable rates> and unreasonable terms. If you review the details of your owner builder financing very carefully, you will get the loan you need and the terms you want.
Other Preconstruction Tasks