Home Loans for Owner Builders
How the Banks See Owner Builders
If you’re already a licensed builder, you’re likely to have several contacts in the building industry that can make building your own home much more affordable. When you build it yourself, you’re by-passing the middle-man and potentially saving yourself plenty of money on construction costs.
Unfortunately, the bank won’t always see it this way. There are only a few home loan lenders in Australia that will consider applications to fund owner builder projects, and all of those will require a minimum of 20% equity.
To a bank assessor, an owner builder mortgage represents a greater risk than a construction being undertaken by a licensed builder. This may be because many DIY builders under-estimate their costs severely. Some owner builders tend to change their plans part way through construction, or go way over budget. There were also those who just didn’t finish the project, leaving the bank with no security property.
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Featured Construction Loans
| Home Loan | Details | Interest Rate (p.a.) | Comp Rate^ (p.a.) | App Fee / Ongoing Fee | Max LVR | Min & Max Borrowing | |
|---|---|---|---|---|---|---|---|
 Loans.com.au – Dream Loan Express – Construction |
Turn your dream home into a reality with a low interest rate home loan, plus no application and service fee. | 6.20% | 6.23% | $0 / $0 | 90% | $50,000 / $750,000 |
 
|
 State Custodians Mortgage Company Construction Loan |
A flexible loan with a competitive rate from a leading non-bank lender. | 6.34% | 6.44% | $0 / $0 | 90% | $100,000 / $1,000,000 |
|
 Homeloans Ultra Line of Credit |
Low interest rate and flexible features to help you pay off your mortgage while planning your home. | 6.57% | 6.63% | $199 / $0 | 90% | $30,000 / $2,000,000 |
|
 HomeStar Advantage Construction Loan |
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How Does A Construction Loan Work?
It could also be because the bank has no guarantee that the builder in question has the requisite experience in actually building a home and organising various tradespeople in order to complete a project of this size.
Differences in Valuation Amounts
Most owner builders will estimate the completed cost of the home after they’ve finished building it as being far higher than the amount it cost them to build.
Yet the bank won’t see it the same way you do. Be aware that the construction valuations (often called “to be erected” valuations, or TBE) will be valued differently to an established property. You will find that the valuer will take the land value and add only the construction costs to it that you supply.
This is not going to be the final home value amount, but it is the figure the bank will take into consideration. They will then lend you up to 80% of this TBE valuation amount.
Progressively Drawn Down Construction Loans
When you’re building a home as the owner builder, you might expect that the bank will forward you the amount of money you applied for upfront. It never works this way.
You will be asked to provide the bank with your proposed building plans, site plans and a complete, itemised estimation of the costs associated with your construction. There will also be a lot of other documentation you’ll need to provide, so be sure to ask for a checklist to ensure you’re supplying all you need.
Construction loans are progressively drawn down in stages as each stage of your home is completed. For example, you hire the contractors you need to prepare your site-works and to dig your foundation trenches, lay the under-floor plumbing, prepare the slab and pour the concrete. When this stage is complete, you let the bank know and they forward the funds to cover this stage.
Your funds are released from your mortgage amount and you move onto the next stage, ordering timber for the first fix stage of construction, and so on.
Unfortunately, you might find that some contractors won’t be happy to wait for the bank to release your money. This means you may need to have some reserve funds available to help pay for any materials you need to buy in order to complete each stage before the bank will release any funds.
It is very important that you don’t run out of money during these phases, as the bank will not top up your mortgage during the construction process. Be careful about estimating your costs and always ensure you have back-up funds, or you’ll end up in a lot of trouble.
Related posts:
- Construction Owner Builder
- Construction Loans & Owner Builder Mortgages
- Bricks and Boards – Construction Loans Solve Housing Shortage
- eChoice Construction Loans
- First Home Construction
- Slight increase owner-occupied home loans have maintained interest rates
- Which Loans are right for Building or Renovating
- First Home Owner Grant Overview (VIC)
- 10 Essential Facts About The First Home Owner Grant
- How to Choose a Construction Home Loan
Top Home Loans
| Home Loan | Details | Interest Rate (p.a.) | Comp Rate^ (p.a.) | App Fee / Ongoing Fee | Max LVR | Min & Max Borrowing | |
|---|---|---|---|---|---|---|---|
Loans.com.au - Dream Catcher | A home loan offer with a $0 application fee and one of the lowest available home loan interest rates. | 5.85% | 6.21% | $0 / $375 | 80% | $50,000 / $750,000 |
|
 Bankwest Online Home Loan | A low interest rate home loan with a $0 application fee and ongoing maintenance fees. This offer is exclusively available by applying online. | 5.97% | 5.97% | $0 / $0 | 80% | $100,000 / $1,000,000 |
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 Illawarra Home Loans Bank Beater Home Loan | A low variable rate, beaten down even further by 0.05% p.a. after 5 years. | 6.07% | 6.35% | $0 / $345 | 90% | $250,000 / $1,000,000 |
|
State Custodians Mortgage Company Standard Variable Offset Loan | Awarded Mortgage of the Year 2012 – this multi-award winner features 100% offset and a loyalty 0.25% rate drop after 5 years. | 6.02% | 6.23% | $0 / $345 | 95% | $150,000 / $1,000,000 |
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