Author: cjesposito | Total views: 52 Comments: 0
Word Count: 989 Date: Mon, 8 Dec 2008 10:32 PM

Is An Owner Builder Loan Recession Proof?

Certainly owner builder construction loans have changed over the last couple of years in response to the tightening of the mortgage industry's metaphorical belt. However, there are still some good owner builder construction loans available today. And, the main features of owner builder construction may make it a winner regardless of the current state of the economy.

A couple of years ago, when the nation's housing market was booming, so was the nation's mortgage industry. People were buying and financing homes at a frantic pace, reaping the rewards of seemingly endless increases in home values. Owner builder construction loans were booming, as well.

This specialty product was a big hit, because the boom in the housing market meant that general contractors were going to charge a pretty premium for their services. Owner builder construction offered a nice alternative. A person could eliminate the costs of a builder by opting to manage the process without hiring a general contractor. The borrower would hire and manage the sub-contractors, and therefore save anywhere from 15% to 40% in equity in the new home.

This process worked great during the golden years of recent past. Whereas the average person who hired a licensed builder had to make a large down payment out of his own pocket if he wanted instant equity in his new home, an owner builder achieved the instant equity through the sweat that he or she put into managing the construction of the home.

However, what about today? Nowadays the housing market is pulling back, and values have dropped substantially. The nation's economy has entered a recession. But, does owner builder construction still make sense? Are owner builder construction loans recession-proof?

To answer that question, we have to look back a couple of years one more time. When the market was booming and house prices were shooting upward, there was one drawback to construction - whether you hired a builder or managed the process yourself. The drawback was supply and demand. Contractors were not only expensive, but also difficult to work with due to an extremely high demand for their services. It was common for owner builders to find sub-contractors unresponsive to their requests for project estimates. In some areas around the nation, sub-contractors had a twelve month waiting list.

Let's fast forward to today. The beauty of owner builder construction loans today is that there is an over supply of sub-contractor labor available to the borrower. As an owner builder, you can easily find sub-contractors who are willing to work for a fraction of their past costs. Why? Because sub-contractors are feeling the crunch just like the rest of us. The housing boom has ended, and there are many sub-contractors who are badly in need of work.

Therefore, today, an owner builder will find great labor rates when building his own home. The smart owner builder will request multiple bids from various sub-contractors. For example, you should get plumbing estimates from at least three plumbers in your area. In this way, you'll find the best sub-contractor at the best rate. In fact, you may find that the sub-contractor will provide you with a bid to perform the labor only to reduce it as time goes by. It's just a simple matter of supply and demand. The sub-contractors know they are competing for work, and therefore they are offering the best prices that have been seen in many years.

With the decreased labor costs, the good news is that owner builder construction still provides a great opportunity to earn instant equity in your home. You are still cutting out the fees of a licensed general contractor. And, you can still move into your new home with 15% to 40% equity. The key today is to smartly shop for the right sub-contractors to do the labor.

This does not mean than an owner builder should always hire the cheapest labor. Indeed, quality of work and professionalism are as important as ever. However, in today's economy, the overall labor costs will be much lower, and an owner builder should take advantage.

Today, owner builder construction loans are especially useful if you want to limit the amount of cash that you put into your new home. Most mortgage products across the country are requiring larger down payments. Gone are the days of the ubiquitous 100% loan. But, owner builder loans still provide options for you to build with little to no cash out of your pocket. A good owner builder loan will be able to provide financing to cover all of your costs based on a strong spread between project costs and value.

Remember, an owner builder will build a home for costs that are well under the fair market value of the property. Even in today's economy of dropping home prices, there will still be the same spread in cost versus value, because the sub-contractor labor costs are reduced.

Therefore, an owner builder loan that will end money up to 80% of your home's value will typically be enough to cover 100% of your project costs. In other words, you can build your new home without spending a lot of cash out of your pocket. And, you'll still move into it with a lot of instant equity due to the fact that you eliminated the general contractor costs that typically come with average construction projects.

So, even though the country's economy has entered a period of recession as the housing market has pulled back significantly, an owner builder construction project will still offer some great benefits to the borrower. In the recent past, an owner builder would earn lots of sweat equity as house values were skyrocketing. Today, an owner builder will earn lots of sweat equity as sub-contractor labor costs are falling just as fast, or faster, than house prices.

About the Author

Chris Esposito and Owner Builder 101 provide construction loans for people who wish to be owner builders and cut out the costs of a general contractor when building their own homes. Call (877) 876-3688 to speak with a representative or visit www.OwnerBuilder101.com.