Owner Builder Financing Without Contractor License

So you did some research on owner builder financing… Maybe you called your local bank and said, “I want to build my own house, I need owner builder financing,” and they basically said, “Good luck finding that!” Well, home builder loans still exist and you don’t need home building experience to get financing.

You’ll find that some lenders call a program they have an owner builder financing program, only to find out that what it really means is that they’ll let you build your own home if you’re a general contractor. That’s still great for those with contractor licenses, but what about the average inexperienced, unlicensed working family? Most banks require you to be licensed or require an approved/preferred site supervisor. Some require an approved builder. What should you do if you want to build your own home, but don’t want to use a builder or site supervisor? keep reading

The internet is a great tool to start looking and see what your options are when you’ve been turned down for local owner builder financing, so I applaud you for finding this article.

Owner builder financing is becoming increasingly difficult to find, primarily due to the current state of the mortgage industry. With all the foreclosures filed across the country, lenders’ guidelines are getting harder to meet. Reported income and no documentation programs have all but disappeared, although there are a handful of lenders that will still fund them with limited or no documentation for good borrowers. With guidelines tightening, the big lenders are shifting to paper A loans with very little risk, especially when it comes to builder loans. But this doesn’t mean that all lenders have stopped lending money to home builders, it’s just harder to find one that does.

Every month hundreds, if not thousands, of people search the internet to locate an owner builder finance company, but there are some that can be found by searching alone. And if you do find one, there’s a chance it won’t lend in your state. Then what do you do?

Well, credit unions enjoy financing owner builder loans, it’s just a matter of finding one that can help you in your local area. They generally have great terms for their owner builder financing programs and understand that type of construction loan. Otherwise, your other option is to locate an owner builder consulting firm that has probably done all the research for you and can help you with financing through one of their lenders. One advantage of using an owner-builder is that, for a small fee, you can get better terms on your loan, like 100% financing for the land, all materials, and labor. The reason, because your involvement, whether as a site supervisor or remote consultant, increases your success as an owner builder, therefore there is less risk to the bank.

One thing to watch out for is owner-builder companies that charge outrageous fees. Some owner builder consulting firms charge such a ridiculously high fee that hiring a general contractor would have cost you the same.

An excellent program for owner builder financing is the Construction to Permanent Loan, this is a loan for the land, construction and permanent mortgage once your home is complete. This is the best type of loan available for your average-sized home. You have a set of closing costs for what is traditionally three loans. It works like a normal construction loan, but once your house is finished, it is modified to a permanent mortgage, such as a 30-year fixed mortgage, a 15-year fixed mortgage, or some type of ARM loan.

Owner Builder Financing Rates

Construction loan rates for owner builders are not crazy. People are worried about paying a high interest rate during construction and they should be, but the truth is that construction loan rates aren’t that bad. The bank is taking a big risk with you up front, so being able to build your house for less than 8.5% during construction would be a great deal, but the truth is that rates can be even lower than this. Of course, after the construction period and modification to a permanent mortgage, rates should be in the ballpark of market rates at that time. There are some loan programs that allow you to lock in your permanent rate before construction even begins.

For owner builder financing approval, you basically qualify for the final loan, this is what makes the construction loan possible. However, if the term of your construction loan exceeds the stated period of 6, 9, or 12 months, whichever is designated by the lender, you may need to be reapproved for the final loan.

Construction interest can be paid during construction or some programs allow your construction interest to come off your construction loan during construction. However, if you have to pay interest during the term of your construction loan, you’ll only pay interest on the amount you’ve currently used. For example, if you just closed, you are only paying interest on the amount the bank paid for the land. As you build and extract additional funds for the project, your interest payments will increase. This is a great incentive to make sure that the construction of your house goes according to plan and that the project always moves forward.

Owner builder financing is still available and won’t be going away anytime soon. As long as lenders scrutinize each project to limit its risks, homeowner and builder financing programs should be around for some time.

Why? When you apply for a construction loan, you’re budgeting that you can build your home for 85% of what it will be worth, based on lenders’ guidelines. This means that if your house will be worth $100,000 at the end of construction, you should be able to build it for $85,000. Some lenders are stricter with these rules and require that number to be higher or lower, but for the most part, you should qualify under ‘future appraised value’ or ‘cost of construction’.

Soft market areas

Currently, there are areas that are designated as soft market areas due to the rate of decline in home values ​​within a given county, geographic location to a declining area, or zip code. What does this mean for you? Well, if you plan to build in a weak market area, you’ll be required to bring some money to the closing table, either in cash or in the form of equity in land you already own. Most lenders require a 10% down payment at closing if you plan to build in a weak market. Some lenders require a 20% down payment. Owner builder financing is still available in these areas, but a down payment is needed.

Owner builder financing is available and can be located locally or through a national lender to build your own home without having to carry a contractor’s license.