At Mortgage Choice we often get calls from owner builders needing finance to complete their construction loan. In recent times many traditional lenders have shied away from providing assistance in these situations. It’s best to do your research & begin the application for finance before you commence so that you’re not disappointed later in the process.
What is an Owner builder?
An owner builder is someone who undertakes a construction or renovation in excess of $20,000, on their own land and is not a registered builder. When it comes to building & renovating, most people are looking for ways to save money & reduce costs wherever possible. Cutting out the middle man can certainly save you money, which you can put towards the build, but it does present some other challenges as well. If you’re one of those courageous people, here are our tips for the best chance of a tick of approval from a lender before you start construction.
Have a plan and cost out your project. Make sure you know exactly what you want to achieve and how much you need to budget for to finish the project. You can’t start a journey if you don’t know how to get there or where you will end up. Itemise each trade required and obtain quotes. We can assist you with budget planning and quoting tools to make things easier for you.
Cash or equity to start. Lenders work on a reimbursement basis. That is, once you have completed certain stages of your project, they will reimburse you so that you can start the next stage. This means you will need to have cash available or equity in your property of around 30-40% to commence with.
Organise your finance before you start. This important step is one that is often missed. It is not uncommon for an owner builder to excitedly start their project, exhaust their savings and then think about approaching the bank to borrow funds to complete the project . Most lenders won’t entertain lending against a partially completed, owner built project. So before you start, make sure you call your Mortgage Choice Broker to arrange your finance.
Stick to your budget. It is easy to get caught up in the excitement of seeing something that looks better than you originally allowed for when buying items for your project. Be careful not to fall into the trap of taking from one trade area to cover the other. You may just find that come the end of the build, you are short of funds.
If you would like any further advice or assistance, please call your local Mortgage Choice Broker Steve Sims on (08) 6144 3230 or 0433 124081