A Guide To Owner Builder Finance

If you’ve ever tried talking to your bank about obtaining finance for your owner builder construction project, chances are that the reaction has been lukewarm. Many banks are very conservative at the moment, particularly with regard to lending to owner builders. Those that do lend have a number of policies that you may need to work within to get your finance approved. Hopefully this article will help you navigate the process a little better.

Out of the 25 lenders that I regularly deal with, only 4 are prepared to offer owner builder finance (and these tend to be the larger banks). The amount these lenders are prepared to look at, range from between 80% of the land value only, right up to 80% of the land and estimated construction costs. In most cases, the lender we utilise is often determined by your level of equity in the property and your additional savings.

For all of the lenders, there are some documentation requirements that need to be satisfied. As a guide, most lenders will require the following:

• full income verification (usually 2 payslips or 2 years tax returns for self-employed people).
• 3-6 months savings and/or loan statements showing good conduct and sufficient equity to contribute to the cost of the build.
• copy of your stamped plans and building permits.
• detailed estimate of your construction costs (possibly a copy of the quotes as well).
• detailed timing schedule of works to be completed.
• copy of the soil test and quantity surveyors report.
• copy of your public liability and other insurances policy documents.

Once you’ve given the bank all of the documents they require, it’s then a matter of submitting your application and waiting for approval. It is important that you do not start building at this stage! Most lenders will not give you any funds on a project that has already commenced, so do not start any building works until you receive formal approval for your loan.

Once your loan is in place, you can start drawing down on the funds as you go. Most lenders will require a valuation as you complete each stage of the build to ensure you are on track. For example, once you have completed the slab stage, you submit a payment request to the bank with a copy of the invoices you’ve paid and they will reimburse you so you have the funds to complete the next stage of the build. Cash flow is very important to budget for in this process because if you run out of funds, the bank will not advance anything further until the next stage is completed.

One final item that is very important but not directly related to the loan. Don’t try to be too conservative in your budgeting in the initial stages. Your plans may change mid build or some unexpected expenses come along. Some lenders enforce a 20% contingency amount on top of your estimated build cost. It’s better to have the funds available and not need them rather than the alternative – as mentioned earlier, it is near impossible to get additional funds once you have started a build.

My experience is that the banks that are prepared to lend to owner builders, take real comfort from DirectBuild’s involvement with the construction budget, trade/supplier quotes and schedule.

Hopefully, this article has cleared up some of your questions with regard to owner builder finance, but should you require more personal advice, please don’t hesitate to contact me.

Shannon Ingram - Smartline Personal Mortgage Advisers

Mobile 0403 845 518, singram@smartline.com.au