Despite the benefits of being a DIY builder, getting owner builder finance can be difficult, especially when there are so few lenders that offer this type of loan.
Your dream home might make a lot of sense to you, but even the most flexible of lenders might not see it the same way. For them to approve your loan, they need to clearly understand the merits of your project in order to reduce their lending risk.
Building through a building company, makes it easy for a lender to know the cost of the construction, because the builder will provide the building costs by way of a building contract as well as what is included in the construction. However, with owner builders they do not know if you have the costing experience to price the home fully. Lenders will be looking at cost estimates, basically a full breakdown of the building so they know that you can complete the construction and not run out of money halfway through.
An incomplete home is a disaster for both the owner and the lender. You cannot sell a home that is not finished so if you forfeit on the loan the bank does not want to repossess an incomplete home, as they will not be able to recoup the money for the loan.
However, the requirement for having cost estimates is also the best strategy when planning a new home. By planning I mean understand the process and do not commit to anything until you are sure you are within your budget. Here are some tips on how to control the process.
Plan to build within your budget.
Try not to use display homes as a guide to cost, they always are understated. By the same token, don’t spend thousands of dollars preparing working drawings and engineering reports until you can verify the costs. Ask your architect, designer or draftsperson to prepare a sketch or preliminary plan and then shop around for the finish you want. Take all of the information to an estimator who will cost the project. If the final result comes in too high, simply take the design back to the draftsperson to downscale or reduce the quality of the finish. This way you can ensure the project will be within budget before commissioning any high-cost works.
Let the banks know you have done your homework!
Banks will not lend to unprepared or ill-equipped owner builders. They simply are not in the business of losing money. Presenting a well prepared and presented proposal, a business plan in fact, lets the financier know you are in control of the project. Include a full Bill of Quantities showing the materials and labour rates needed to complete the construction.
Don’t tell the bank that your cousin is a plasterer or painter and will do the job a lot cheaper. The financier will want the costings presented at normal industry rates. Should something go wrong, and the project needs to be finished by a tradesman, the money needs to be there to finish the project.
Understand current construction costs!
Construction methods and regulations have changed dramatically over the years. It used to be cheaper to build a 2-level dwelling, less tiles and trusses, but now there are scaffolding costs, safety rails, harnesses and stair guards, these all add to the cost of construction.
Recent energy requirements are changing the way we build. More care needs to go into the planning and siting of the home. There may be a need for double glazing or increased insulation, all additional costs.
Understand the cost implications of your proposed construction method and the result of an incorrect design for your particular block of land. Do your homework and get it costed BEFORE you give anyone the go ahead is our advice. …plan ahead… understand the process and do not commit to anything until you are sure you are within your budget.
Keep a quote register to help keep track of quotes and prices.
Example - Quote register example:
me Trade/supplier Date sent Quotes Price
Plumber 1/1/2020 $8500
Plumber /drainer 1/1/2020 $8900
Tips and Common Sense
· Hire a professional building estimator to get all the construction costs
· Do not use display homes as a guide to cost
· Don’t depend on friends and family to do work as they may not show up when needed
· Plan a home size you can afford too fully complete
· Keep a quote register