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An owner builder loan is designed for those who wish to build their own home without the help of a licensed builder. Many lenders consider these mortgages to be high risk so not many lenders will accept applications for these types of home loans.
Additionally, the loan amount for owner builder loans is often restricted to 60% of the total land value and construction cost. The lender will take into consideration the value of the vacant land as part of the valuation total. The lender will look closely at the quotes provided to them that form the estimated cost of materials and labour required to complete the construction.
You should seek pre-approval before entering into an owner builder arrangement.
By getting a pre-approval, you will have a good idea of what your maximum loan amount could be and what LVR they will accept. This will assist you in deciding if an owner builder construction loan will be viable or if you should do your construction under a licensed builder where you could borrow at a higher LVR.
Lenders require you to create a cost estimate before you start construction, including what trades are required and their costs. Once this is completed, a valuer will confirm the cost estimate as adequate and realistic.
Once a valuer approves the cost estimate, the lender issues a commencement letter. As the lender will lend only to a maximum of 80% of the cost, you must contribute 20% of the total before the lender will release any funds for the loan.
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