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What it Takes to Build a Dream Home: Owner Builder Construction Loans Demystified

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Building your own home is the ultimate DIY project anyone can undertake. It can be a great adventure if you have the right concept of design, a working idea of construction and safety, and enough funds to support your dreams. Owner-builders save a lot of money in the process. Just like any other construction project, it involves a detailed process. It involves obtaining permits from the local building departments. That is especially necessary if you will be using eco-friendly and alternative building materials during the construction work.

Should you be building your own home?

Becoming a successful owner-builder takes considerable effort. You need to do your homework on the different ways to fund your project. Creative home designs and inspiring instances from around the world like the Hobbit House in Wales that a man single handedly built for under $5000 and the weekend, WikiHouse that uses timbers that “snap” together. So, if you have found the inspiration to develop your own home to cut the costs and give your abode a unique touch, we have a few points of advice on how to fund it.

Owner-builders benefit significantly from the owner-builder construction home loans. Hiring general contractor costs substantially more than acting as your owner-contractor. It is a massive responsibility since you have to take care of the plumbing work, electrical wiring and seek the approvals from the different city offices. Although that sounds like a formidable task, thousands of homeowners in the US and many more in the European countries are building their dream homes at a bargain price by braving these responsibilities. It is always the cheaper option between the two.

What should you know before getting an owner-builder construction loan?

The primary challenge of the process is that financial institutions and other potential lenders see owner-builders are high-risk borrowers. Most traditional lenders like the nationalized banks and private lending companies view private building projects as long-term engagements. They also believe that all forms of building construction work should happen under the foresight of professionals only. There are many such institutions across the country, which will try to convince you to do one of the following –

i. Hire a general contractor
ii. Hire a construction management company
iii. Hire a site project manager

Doing one of these is indeed easier than undertaking the task of building an entire house on your own. However, it is your dream home, and you might want to stick to your original plan. In that case, you should begin looking for owner builder construction loans that cover all your needs. Just like any other loan, you need to compare the offers at hand before you sign the dotted line. Do not sign a deal with the first lender you come across. Speak with at least four or five private lenders before making your decision.

What are the pre-qualifying terms for the owner-builder?

The standard owner-builder loan application should include the following details –
i. The stipulated time of completion.
ii. The size of the project.
iii. The projected costs.
iv. A complete building plan

You might not want to hire professional help with the building process, but working with someone with building experience will help you put a complete loan application together. You can contact builders and subcontractors for this step, or you can speak with a friend who has experience in the field. An excellent loan company should extend a helping hand during the application step as well. So make sure the loan company you have chosen has a reliable history, good reputation with previous clients and experienced professionals at your service.

Why is an Owner Builder construction loan the best option for you?

This ultimate DIY challenge warrants generous funding and flexible terms of repayment. Several recognized institutions across the USA offer specialized loans for potential homeowners, who want to build their own houses. These are private lending companies that provide certain facilities that banks cannot. They do not necessitate the hiring of professionals. Banks require the builders to pay for the building material upfront and then seek compensation. However, it can be impossible to do if you don’t have capital in the first place. In contrary to that, when you take out an owner-builder loan, it will pay for the work in real-time.

Some leading owner-builder loan companies offer additional services. Apart from financing, you will receive project management advice, material sources and suggestions, information on the prices and ongoing discounts on standard building material, and recommendations and contacts for subcontractors. Thus, these specialized loans are the best options for anyone, who has recently bought a piece of land and hopes to build their home from scratch.

How does a specialized loan for owner-builders help in saving money?

One of the things you must know about this type of loan is that their interest rate can be higher than the traditional loans. As we have mentioned before, most traditional loan companies find lending to owner-builders riskier than lending to conventional home building projects. You must remember that taking out this type of construction loan means building equity. All general contractors usually charge a fixed percentage of the property value as their service fee. It can go up to 20% for contractors in your area. Being your own builder gives you the opportunity to turn that payment into equity. The interest seems like a small price to pay for a long-term gain in terms of property value.

It is true that building your home is a project you should only undertake if you have time, energy and enthusiasm. Building a house takes immense effort, creativity, and engineering skills. At the same time, you will save considerable money. If you want to have complete control of the construction process and add equity to your property, then DIY-ing your home building is the best idea you have had in a while. In that case, go ahead and check out all the owner-builder loans in your area. Begin the search with considerable time in hand since finding the right lending company might take a while.

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