Owner builder needs loan to construct 3 small developments

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Cam
Posts: 52
Joined: Fri Jul 26, 2013 7:00 pm

Owner builder needs loan to construct 3 small developments

Post by Cam »

Home Loan Experts

Will the banks have any issue with a construction / investment loan?

I am planning to construct 3 small developments near my current address to use as investment properties. I am planning to build these myself as an owner builder since I have a license to build and I want to avoid paying another person to do the building – I also imagine that this should help me decrease my cost a little bit.

Thanks!

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Otto Dargan
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Re: Owner builder needs loan to construct 3 small developmen

Post by Otto Dargan »

Hi and welcome to the forums Cam,

We have a lender who help owner builders with smaller projects.

For this you can borrow up to $1,500,000 or 70% of the Gross Realisation Value (GRC) or 80% of the hard costs. If your project requires more money then you can borrow more as long as you have a strong asset position.

Please note that if you decide to sell the properties then some lenders may not even require you to show proof of income. Furthermore you may not require presales if you are building small duplexes, townhouses or units.

In any case you also have the option to refinance later on to a standard investment loan.

Cheers,
Otto
Otto Dargan
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P | 1300 889 743
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Cassie
Posts: 45
Joined: Tue Jul 02, 2013 7:01 pm

Re: Owner builder needs loan to construct 3 small developmen

Post by Cassie »

Hi, just wanted to know if a construction loan is the same as a normal loan in that will the money be transferred to me as soon as the loan is settled.

FYI I’m also building some properties but I’ll be living in one and selling the other. I am based in Sydney and run my chain of cafes.

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Otto Dargan
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Re: Owner builder needs loan to construct 3 small developmen

Post by Otto Dargan »

Cassie, actually with construction loans the money will only be advanced to you gradually as your construction is going on in what we call “progress payments” or “construction draw downs”.

How this work is the entire construction process is broken down into several steps and whenever one is completed the lender will send a valuer to verify the work done. Only once they make sure that you have followed the plans will they okay the next transfer of funds to your account.

Alternately you can also get a mortgage broker to arrange a line of credit based on your land value once you have enough equity. The advantage of doing this is that you can complete your construction without having to rely on the lender.

Please note that it is best if you are a licensed owner builder otherwise it will be difficult to find a lender who can finance your home loan. Preferably you should have an unlimited building license and not a project management license.

Cheers,
Otto
Otto Dargan
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P | 1300 889 743
Home Loan Experts

Cassie
Posts: 45
Joined: Tue Jul 02, 2013 7:01 pm

Re: Owner builder needs loan to construct 3 small developmen

Post by Cassie »

Yes I am a licensed owner builder. Is it really that more difficult otherwise?

And since you mentioned floor plans, what documents do I need to submit when I apply?

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Otto Dargan
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Re: Owner builder needs loan to construct 3 small developmen

Post by Otto Dargan »

Hi Cassie, you will have to submit the following documents when you apply for a construction home loan:
  • Building plans / floor plans
  • Breakdown of the total costs (of construction)
  • A copy of your owner builder insurance (if possible)
  • A copy of your owner builder permit (if possible)
  • Proof that you are using the Home Building System (if possible)
  • Council approved plans
As for unlicensed owner builders it is not impossible to find a lender however it will be more difficult. This is usually easier if the borrower has a large deposit.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

Cassie
Posts: 45
Joined: Tue Jul 02, 2013 7:01 pm

Re: Owner builder needs loan to construct 3 small developmen

Post by Cassie »

Great, thanks for all the info. Btw I was told by a friend that I may have to go for a low doc loan since I am self-employed – would this be a problem later on?

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Otto Dargan
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Re: Owner builder needs loan to construct 3 small developmen

Post by Otto Dargan »

Cassie, actually you cannot get low doc financing to construct a home as an owner builder since none of the lenders in Australia offer this type of loan product.

At most we can help you get a low doc loan to cover the costs of purchasing the land (up to 80% of the land value, not the completion value).

Please note that just being self-employed does not mean that you have to apply for a low doc loan since you can still get a full doc loan if you have the required income evidence.

To get a full doc loan you can submit the following documents to verify your income:
  • Last two years’ financial statements
  • Last two years’ business tax returns
  • Last two years’ personal tax returns
  • Last two years’ notices of assessment
If you cannot provide these then you can go for a low doc loan where you will need to submit one of the following:
  • BAS statements
  • A letter from your accountant
  • Business bank statements
Some lenders may also accept the following as proof of income:
  • Financial statements from the last year
  • Old tax returns not less than two financial years ago
  • Etc.
If you need more help regarding this then you can contact us on 1300 889 743 or enquire online, whichever is more convenient for you.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

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