Bank Loans & You
If you are considering becoming an owner builder but need a bank loan – read through the rules to understand what you can be approved for.
Generally speaking, owner builders may have difficulty getting a loan to start up, that’s because there is no guarantee for the bank that they will receive a finished product on the money they loan. If you need finance, it pays to know a thing or two about how you can maximise your chances of being approved.
What should I show the bank?
As well as the usual paper work, as an owner builder you'll need to show:
- A copy of your owner builder license
- Your budget
- A construction estimate
- Your project plan
- Your builder insurance
How does the loan work?
Generally, once approved your lender would release funds in progress payments. Instead of one large lump sum as it would with a standard mortgage. As you complete each stage of construction, a valuer would then assess the stage you've completed. Then authorise the lender to release the next progress payment.
Maximising my Chances?
- Budget Effectively: you'll need an accurate budget with contingency costs included
- Pre-apprvoval: Know what your Loan To Value (LVR) will be
- Wait: Be patient wait for approval, most lenders will not approve the loan if work has already begun.
- Seek Advise: Speak with any financial advisors, accountants and/or project managers to help budget, if you can?
Simply put, banks will be hesitant to lend to owner builders because it comes down to money management – which is a complex subject, when dealing with a long term construction project. Meeting criteria and having equity, savings or a guarantor can better the chances of getting a loan. It would be very advantageous to talk to your bank before fully exploring the owner builder avenue. Get a better idea whether your bank will be willing to loan to you, and what criteria they need ticked.
So, what does that mean for lock up homes? The same rules would probably apply depending on your bank – as they are only seeing a home half of the way completed, and could see risk in a 50% completed home.
If in doubt, contact The Shed House team, we are here to answer your questions. Read more about the owner builder process here.