Owner builder

Did you know that most banks only lend for the construction of homes built by licensed builders

If you are building your own home then you will have significant difficulties in trying to get your bank to fund your project.

Owner builder construction loans are available from a few select lenders if you have a large amount of equity or a guarantor that can assist you by providing additional security.

How much can you borrow?

First home buyer: 80% of the property value (restrictions apply).

Investor: 80% of the property value.

Guarantors: If you have a friend or family member that can guarantee your loan then you may be able to borrow more than 80% of the project cost up to a maximum of 100% on a case by case basis. For more information please refer to our guarantor web page.

Low doc: Not available except through more expensive private finance.

Discounts: Competitive professional package and basic loan discounts are available in some cases.

Please Contact us to speak to a mortgage broker that understands owner builder construction finance.

Value or Cost?

When lenders assess the value of a property that is yet to be built they ask their valuer to be a “To Be Erected” or TBE valuation. Typically the valuer will look at the plans and the cost of construction and in almost all cases will value the construction project at the value of the land plus the cost of construction.

Lenders are always conservative when assessing the value of the property you are using as security. They will use the lesser of the actual valuation or the total of the purchase price / value of the land and cost of construction. This is no different for owner builder loans, and as a result it is important to have significant equity in the land otherwise you may not be unable to obtain a loan approval.

How are the payments made?

Unlike with a traditional home loan, the lender will not pay you all of the loan funds when the loan is setup. Instead they will release funds to you as construction progresses. This is known as progress payments or construction drawdowns. Once you have completed each step of construction a valuer will be sent out to assess your work and will authorise the next payment.

If you have significant equity available then we may be able to arrange a line of credit on your land that will allow you to build your home without the need for the lender to monitor your progress.

Which documents do you need to provide?

As an owner builder you will need to provide more documents than a traditional borrower.

• Building plans.
• An itemized estimate of the total cost of construction.
• A copy of your insurance (if applicable).
• Evidence that you are using the Home Building System (if applicable).
• A copy of your permit (if applicable).

Once you have obtained council approval you will be required to provide a copy of the council approved plans to the lender.

Why are the banks so conservative?

In the past many lenders were happy to work with owner builders. However several banks noticed that there was a high incidence of people changing their plans, going over budget or not completing the project. Because of this many banks and building societies withdrew their funding for people that are building their own home.

Lenders tend to view some applicants more favourably than others. Applicants that are licensed builders, have experience with one or more trades, that are using a program such as the Home Building System or that are registered are seen as a lower risk to the lender.