Owner builder loans
Owner builder loans are also known as construction loans because they relate to a home you plan to build yourself to live in. Why build for yourself? You probably want to create a home style that will match your lifestyle, reflecting your character and values as well as your environment. It's a worthy ambition to create an original home and is one that owner builder loans can help you realise.
What are owner builder loans?
When you're planning to build your own home, it's highly likely you will need financial help, and possible lenders will look at your project to see if they want to support it. Owner builder loans are available to assist you to pay the cost of building a property but they are sometimes tricky to obtain. You will usually take out a loan over a short time period – it's usually around a year – so that you have sufficient time to get the home built. When the building is completed, you'll need to pay off the owner builder loan. It means that you'll have to refinance with a new loan, generally called an "end loan", and you can do this by taking out a standard mortgage over a number of years. Depending on what lenders are offering - and you should do plenty of research - you could get a variable mortgage or one with a fixed rate for a specified number of years.
How do owner builder loans compare to similar products?
These types of loan may be more expensive than an ordinary mortgage because the lender is taking a risk in that there is only an idea, not an actual tangible asset that can be easily valued. If your builder doesn't deliver to the standard expected, then your lender's investment could be devalued. If you are seeking this type of loan, you need to ensure that potential lenders can be confident that they are making a good investment.
Are there specific features that you need to think about for an owner builder loan?
You need to provide potential lenders with solid, reliable information about your building projects. You need a reputable building firm and detailed plans to be submitted as well as a realistic timetable. Be aware that building projects often overrun in terms of time and cost, so factor in some contingency when you take out a loan. You'll only pay interest on the money drawn down by the builder in most cases, so keep a close eye on what is happening on-site and what money for the loan is going out. If you have an architect, it will be their job to monitor the development. It will cost you, but sometimes it's worth having a professional available, especially if you have busy work and social schedules.
Is it risky?
There are risks associated with these loans, but risks within your control can be mitigated. Some risks, for example a contractor going bankrupt, cannot be controlled by you. Keep your project on track, and especially on time, and at the end, you may have had a few upsets but you will emerge with the home of your dreams.