Construct Your Own Home as an Owner Builder

2010 March 8
by iggy

Two builders looking at house plansFor those who have the skills & funds to do so, building your own home from scratch can be a very rewarding experience. After all, it is the ultimate do it yourself job!  You can make your own floor plan, formulate your own designs, use the materials that you want and keep a close eye on the qualify of work.  You  can save on costs especially if you have access to suppliers that can provide you with your building materials directly at a discount, cutting out the middle man.

One of the biggest advantages is to choose your own contractors. When you hire a contract builder they will often select the tradespeople who give them the lowest quote. As a result, you end up having your house built by poorly trained apprentices! When you owner build your new home, you get to interview and select the contractors you do business with. Sure price is important, however it’s also important to have your home completed on time to a high standard. Defects and delays are often far more expensive and emotionally draining then the cost you may save by using a cheaper contractor.

The trouble with finance…

However, being an owner builder does have its drawbacks.  One of the main drawbacks is trying to get a loan to fund your project.  This is because Australian banks and other lenders see this type of home loan as too great of a risk, and are reluctant to lend out money to fund any construction project that does not have a fixed price building contract with a licensed builder. 

The main cause for this reluctance is that because you are both owner and builder you have complete control of the costs of construction.  Although this may be a good thing, it may also turn out badly especially when cost estimates and the actual cost of construction turn out to be very different figures.  This can happen when you change your mind about the specifications, fixtures, fittings or change design midway through construction. You may be certain that you will not have these problems, however the bank will not share your confidence!

Apply for a home loan

Fortunately there are a few banks and lending institutions out there who are willing to grant your owner builder home loan.  You no longer have to exert effort in finding the right lenders.  Speak to specialists in owner builder home loans such as the Home Loan Experts (Ph: 1300 889 743) and they can help you to get approved at a great interest rate.

Do you already own your land?

If you already own the vacant land that you intend to build on then you will need to refinance your land loan as part of the approval for the construction loan. This is a simple process whereby you provide six months worth of statements for your existing mortgage, and the new lender will contact your old lender and repay their debt when the construction loan is setup.

Can I afford my repayments while building?

While you are building your home you may be paying rent and the mortgage as well. In addition to this you may also have minor cashflow problems while waiting for your bank to release the next progress payment for the work that you have completed.

Don’t worry, the banks have solved this problem. You will normally make interest only repayments during the construction phase which will reduce your monthly outgoings during this difficult time. Once construction is complete then your repayments will switch to standard principal and interest repayments over the remaining loan term.

Learn more about the owner builder process

Building your own home isn’t something to be taken lightly. We strongly recommend that you take the time to find out more about the process and gain experience from people that you know who have done it before. We would also recommend that you read the Owner Builder Guide which will guide you through the entire process from vacant land to completion.

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