Owner Builder Construction Loans

Contrary to popular opinion, it's neither difficult nor expensive to obtain an owner builder construction loan. Also, if arranged properly, the opportunity exists to build with no money down and move into your newly built home with positive equity. There are some things to be cautious of and good credit doesn't hurt.

What is an Owner Builder Construction Loan?

As the owner-builder, you act as the general contractor (GC) of your home construction project. Historically, most GC's charge up to 20% as a construction fee. When acting as the GC, you can eliminate this fee and control all decisions regarding the project. This includes your choice of contractors and the materials utilized in the construction of your home.

In granting an owner builder construction loan, the most inviting opportunity for a potential lender is the fact that the Owner can typically complete the project with instant equity. The process is not without challenges and you should have superior people, organizational and management skills.

How the Owner Builder Construction Loan Process Works

The first step is obtaining the loan itself. There are numerous lenders that are willing to grant owner builder construction loans. In addition, lenders can also be a very valuable source of information regarding contractors, materials and various costs associated with the project. Proper preparation is critical and you will need to have done some homework prior to meeting with potential lenders. Creating a well-organized portfolio will increase the likelihood of your owner builder construction loan being accepted. Here are some things to include in your portfolio:

  • Graphics and images - Have detailed drawings of your project prepared. This can also include blueprints and aerial images. Pictures of the proposed building site are also a good idea to have on hand.
  • Legal requirements - Be prepared to demonstrate your ownership or legal rights to the proposed building site.
  • Local government - Letters and notes from discussions with your local government officials. You'll need to be certain that your project is zoned properly.
  • Construction planning - Develop your project into the various stages of construction. For example, foundation, framing, roof, electrical, heating and air conditioning, water and sewer. In addition, secure bids that estimate the costs, materials and the complete project.
After completing your portfolio you can begin approaching prospective lenders for an owner builder construction loan. You may be able to save additional money by having the lender release the loan proceeds in installments. There are a couple of strategies that you can put to work here.
First, it is customary that lenders will charge interest-only on loan proceeds released during the construction project. Therefore, payments on the principal would not begin until after completion.
Second, under no circumstances should you withdraw your entire loan. By following the stages of construction in your portfolio and having loan proceeds released in installments, you can substantially reduce your interest payments.

An owner builder construction loan provides you with the opportunity to build the home of your dreams. In addition, you can complete the entire project at or below wholesale. If you have an appreciation for a challenge and enjoy weaving your way through the complexities, it could be the right loan for you.