January 22, 2021
One of the first challenges an owner builder needs to tackle for their new dream home project is the financing. Many traditional banks don’t want to provide construction loans to the owner builder due to the increased risk associated with the project. Let’s take a look at a few of the reasons banks shy away from this type of business even though it can be very lucrative for them.
Traditional home mortgages are a relatively safe bet for lenders. Why? Well, a completed home is quite marketable. So let’s take a look at the unfortunate circumstance where the borrower loses their job, can no longer pay their mortgage, and walks away from the home. What recourse does the lender have? Typically, although not with the current moratorium, the lender will foreclose on the property and take back the house. Then the lender will put the house up for sale. And because the lender required the original owner to put money down, they should get most of their money back.
Now let’s look at an owner builder construction loan. Let’s assume the owner builder runs into financial trouble half way through the building of the home. For this example, let’s assume the owner builder also walks away from the property. In this situation the lender would need to finish the home to be able to sell it. And since lenders aren’t in the business of building homes this could be a very expensive and time consuming project to get their money back. And in many cases, the lender will lose money on the deal.
So because obtaining construction financing is so important to the success of any owner builder new home project, we’ve included an entirely new section on owner builder loans in our Build Your Own Home online course. We’ve interviewed one of the foremost authorities on how to get financing as an owner builder and share it with our students. Check out the video below that discusses some of the owner builder financing questions we tackle in the course. And if you haven’t seen our Owner Builder Class website, you may want stop by to see what it’s all about.
