Although initially saying it would be no problem when we first asked about a loan to build a new house, when we have now got serious about a loan from the bank, they have heard the dreaded words "owner-builder" and had a hissy fit. Does anyone know if there is a real problem getting these, or is it perhaps because the manager we deal with hasnt done one before
Bank loan for owner build
- Thread starter fernfurn
- Start date
hissy fit 
they arent easy to get through above 60 % or so
much depends on what experience you have and how well costed your plan is
In the end, banks hate them, because the majority of owner builders almost always run out of money.
ta
rolf
they arent easy to get through above 60 % or so
much depends on what experience you have and how well costed your plan is
In the end, banks hate them, because the majority of owner builders almost always run out of money.
ta
rolf
Hi fenfurn
Why Owner Builder?
Are you a Builder, a Tradie or just someone who is 'handy'?
What are your motives for building a house this way? It is never cheaper and rarely produces as good a result as a licensed builder and always takes much longer and is oodles more expensive that a bought one.
I have done the Owner Builder bit and speak from bitter experience
So perhaps if you can say what your experience is, and why you want to go down the owner builder rubble strewn path, you will get a better quality reply
There is a loan for everyone, but sometimes the loan 'costs' are higher than anticipated. Motives are important eg you may have had a burning desire since childhood to build your own home because .... (insert burning reason here)
However, if it is just because you don't want to pay those mongrel builders any profit then you may find that paying a builder (mongrel or not) gets you a better, cheaper, quicker build and you can then satisfy the burning desires by building a garage, shed or pergola later, once you are snugly tucked in and the house is finished.
Cheers
Kristine
Lots of people have owner built in the past .. when borrowing was easier.
When I am valuing their house for refinance years later I always ask them this "would you do owner builder again"
80% say “no” or “no way”.
It can be far cheaper to go with a volume builder such as the Henly's, metricons, porter daivis' of this world, than do it yourself.
Progress payments are a nightmare, I hate doing them on owner builders .. they are always desperate for funds .. but I have to recommend that the bank retain enough funds to finish the place at full commercial rates .. sometimes they get very little in the form of progress payment.
It goes like this .. you think you can build a house for $250k. I believe that the actual cost of having a builder (not a volume builder) build the place is $350k.
The end added value of the improvements is say $325k (cost does not equal value)- great you are saving $75k. Say you find a bank that will lend you 75% of the end value, that is a loan of $243k - almost the whole cost you expect .. great eh?
So you got the slab down, usually this is a 15% (deposit 5% and slab 10%) progress payment.
You have spent $25k of your $35k in cash on this .. plus you have foolishly prepaid some tradies (it happens heaps) and have bought the tile you want for the floors at say $8k, stored in your mothers garage ... so you have used almost all your funds getting there.
I tell the bank that they need to retain 85% of $375k to finish the job. .. the bank needs to retain $298k ... your construction loan is $243k .... they will not release a cent to you! ..
SO you have the slab down, prepaid part of the pre-fab frame and have some nice tiles in the garage .. and you are stuck.
You hit you parents up for a $50k loan on their house to see you through.
You spend this getting the frame up - the next 15% of the cost, $35.5k.. I do a progress certificate. The bank needs to retain 70% of $375k ..$262.5k .. you still do not get any funds from the bank.
You hit your grandma up for the next $50k .. it costs $3k in expenses to do this which you promise to repay at the end. You now have $64.5k in the bank
You get the place locked up .. this is the big one in terms of costs and the progress payment is 35%, so this costs you $87.5k (35% of $250k). You owe the tradies and suppliers nearly $20k at this stage and they are pressuring you. .. plus the $103k you owe to the parents and granny plus the interest bill they are covering for you.
I do a progress and recommend that the bank retain 35% of $375k or $131k .. so they release you $102K .. at this point you will finally be ok.
Just remember traides will put you at the bottom of the priority list in terms of turning up .. if one is late then the whole process can be thrown out of whack .. plus you will notgernerally get the same prices they charge the builder form whom they get most of their work.
And I will almost guarantee that it costs you $25k more than you thought it would .. total $275k ...
Plus you owe your parents and grandma $15K in interest .. and your build time has run to 18 months so you have also paid an extra $15k in interest on the land and the progress payments .. oh yeah not to mention the extra 9 months to one years rent you had to pay during the delay ..
You relationship is in tatters .. and Henly would have built the whole thing for you for $325k all up.
If you go down this route have a whole heap of funds available. Also no matter what you have bought .. appliamces, tiles, windows etc.. until they are affixed to the land in some way you will get no money from the bank for them.
I trust this helps.
Cheers
RightValue
PS.. I was looking to owner build in the not too distant future .. I intended to fund the whole build cost from savings and cash flow .. it is just not worth dealing with banks IMHO as an owner builder. But factoring in lost income, I won't save myself all that much .. so I may just get a builder.
When I am valuing their house for refinance years later I always ask them this "would you do owner builder again"
80% say “no” or “no way”.
It can be far cheaper to go with a volume builder such as the Henly's, metricons, porter daivis' of this world, than do it yourself.
Progress payments are a nightmare, I hate doing them on owner builders .. they are always desperate for funds .. but I have to recommend that the bank retain enough funds to finish the place at full commercial rates .. sometimes they get very little in the form of progress payment.
It goes like this .. you think you can build a house for $250k. I believe that the actual cost of having a builder (not a volume builder) build the place is $350k.
The end added value of the improvements is say $325k (cost does not equal value)- great you are saving $75k. Say you find a bank that will lend you 75% of the end value, that is a loan of $243k - almost the whole cost you expect .. great eh?
So you got the slab down, usually this is a 15% (deposit 5% and slab 10%) progress payment.
You have spent $25k of your $35k in cash on this .. plus you have foolishly prepaid some tradies (it happens heaps) and have bought the tile you want for the floors at say $8k, stored in your mothers garage ... so you have used almost all your funds getting there.
I tell the bank that they need to retain 85% of $375k to finish the job. .. the bank needs to retain $298k ... your construction loan is $243k .... they will not release a cent to you! ..
SO you have the slab down, prepaid part of the pre-fab frame and have some nice tiles in the garage .. and you are stuck.
You hit you parents up for a $50k loan on their house to see you through.
You spend this getting the frame up - the next 15% of the cost, $35.5k.. I do a progress certificate. The bank needs to retain 70% of $375k ..$262.5k .. you still do not get any funds from the bank.
You hit your grandma up for the next $50k .. it costs $3k in expenses to do this which you promise to repay at the end. You now have $64.5k in the bank
You get the place locked up .. this is the big one in terms of costs and the progress payment is 35%, so this costs you $87.5k (35% of $250k). You owe the tradies and suppliers nearly $20k at this stage and they are pressuring you. .. plus the $103k you owe to the parents and granny plus the interest bill they are covering for you.
I do a progress and recommend that the bank retain 35% of $375k or $131k .. so they release you $102K .. at this point you will finally be ok.
Just remember traides will put you at the bottom of the priority list in terms of turning up .. if one is late then the whole process can be thrown out of whack .. plus you will notgernerally get the same prices they charge the builder form whom they get most of their work.
And I will almost guarantee that it costs you $25k more than you thought it would .. total $275k ...
Plus you owe your parents and grandma $15K in interest .. and your build time has run to 18 months so you have also paid an extra $15k in interest on the land and the progress payments .. oh yeah not to mention the extra 9 months to one years rent you had to pay during the delay ..
You relationship is in tatters .. and Henly would have built the whole thing for you for $325k all up.
If you go down this route have a whole heap of funds available. Also no matter what you have bought .. appliamces, tiles, windows etc.. until they are affixed to the land in some way you will get no money from the bank for them.
I trust this helps.
Cheers
RightValue
PS.. I was looking to owner build in the not too distant future .. I intended to fund the whole build cost from savings and cash flow .. it is just not worth dealing with banks IMHO as an owner builder. But factoring in lost income, I won't save myself all that much .. so I may just get a builder.
That is an excellent post RV, I have printed it out and will give it to next person who tells me they are going to owner build ( funny as i know a couple who borrowed $50k off parents and ended up moving in with them and building blew out 15 months longer than expected.)
Ah sucking up to a valuer and I am not even asking for a val bump
If you are still considering then I suggest you to try to contact any other lending institution or bank who can really help you and clarify you what exactly the doubt is all about. The other options has been provided by some of my friend above.
I've never not seen an OB blow out.
Last one spent $500k on a $300-350k job. Note this is on his PPR, which now brings his PPR debt over $700k.
I'd figure he'll be selling in @3 years as he doesnt want to invest into other property/investments until hes at 50% LVR on his PPR. Which in logical terms can make sense, but in practical terms that's 10 years away.
So honestly, most OBs who come to us, we say get a contract builder to make life easier for everyone. Dont care if its a mate or whatever...
People have these ideologies - my quality will be so great and this and that. Whoop de do. On a 300k job the quality isnt the same as on a $1m job (if you see what I mean where I'm headed - $1m pays for a lot better quality/placing/property etc).
Last one spent $500k on a $300-350k job. Note this is on his PPR, which now brings his PPR debt over $700k.
I'd figure he'll be selling in @3 years as he doesnt want to invest into other property/investments until hes at 50% LVR on his PPR. Which in logical terms can make sense, but in practical terms that's 10 years away.
So honestly, most OBs who come to us, we say get a contract builder to make life easier for everyone. Dont care if its a mate or whatever...
People have these ideologies - my quality will be so great and this and that. Whoop de do. On a 300k job the quality isnt the same as on a $1m job (if you see what I mean where I'm headed - $1m pays for a lot better quality/placing/property etc).
Yes, well I'm sure some inexperienced people could get into trouble, but I used to run my own interiors business and have done quite a bit of renovating, extension work etc. We paid cash for the land and have 25% cash to get us started. If all else fails l can use a continuing loc I have, but would prefer to have a stand alone deal. We havent been declined, just the reticence threw me.
Oh well, latest update, we have been declined. Evidently my past record counts for nothing and we are lumped in with the idiots who spend the progress payments on gold taps or a boat instead of paying tradies. Not to worry, bm said if we fund it out of my loc, he will value it as soon as it is finished and then set up a load against it then. We were planning to have this built in 6 mths, but had already booked to go and live in France for 3 mths, and as our plans are only going to be finished this week, I think we will get it to lock up before we go in august, and have everything ready to be installed when we get back in November. Plan to have it finished about Feb and valued and set up loan then. Must push the envelope and live on the edge, cant stagnate.
They were my thoughts wehn I read that the oand was fully pad for.
Borrow down 75% on the land as a LOC and use that.
The purpose of the LOC is fr investment purposes .. don't mention owner builder.
Altenatively use some of the cash you have set aside for your French experience and go next year or build fast.
There is no reason buiding a house should take longer than 2-3 months unless it is complicated .. provided evey trade turns up on time.
I have seen a house go from inground plumbing to frame stage finished in 4 days in the past (went to do a base stage progess on Monday - builder invoiced before work done- nothing there ..by Friday the Frame was up ... concrete was still very green!)
I have lived in a dwelling I built which was finished inside before the exterior cladding was on .. wrapped it up and went ahead with the inside ater the roof went on.
cheers,
RightValue
you know i was going to buy a home that had an approved 4bed at the back, and i too was lumped in with the idiots, but i am a practicing licenced builder
Shoot, that would be an awesome performance if they only went 10% over.
I suspect owner-builders usually go over by more like 25-40%. (And I'm not even going to say how much I went over the first and last time I did it!)Certainly agree on this, though I disagree that the quality is necessarily inferior.
Yes craig, the bm said they treat reg bldrs the same as owner bldrs. very frustrating, but I guess we should be grateful we can still owner bld as the commission is trying to stamp it out. Getting a house built (yourself) is just a matter of good organisation, notifying the trades well ahead of time when you have booked them in, and notifying them immediately of any changes or holdups. Ours is architect designed and pre approved with the land, so no go for a production line builder, and although I redesigned the inside a fair bit I have kept the original footprint so am keeping fingers crossed, bldg dept will issue bldg permit without it having to go back to council. Only outside footprint alteration was to extend double garage another 2mts to boundary (same as house next door already approved) and this is not over 3mts high at boundary, so keep our fingers crossed Thought about using the land for a loc but it wouldnt be enough and I have one already set up against other properties. Cant (wont) delay France trip, air fares, car leasing etc already paid for and we should be able to manage it all. I started a thread about building a house in 6 mths, but dont know how to reactivate it. Will probably just start another one.
