The Fall of the Owner Builder Construction Loan

Owner builder construction loans have not been immune from the pains within the mortgage industry over the last couple of years. In fact, there have recently been some major changes within the world of owner builder construction financing that are worth examining. It's time to take stock and fully assess your current options for the new realities of today's market.

Over the last couple of years, as liquid capital has been evaporating from the pool of mortgage financing around the nation, owner builder construction loans have been morphed and altered dramatically. If you built your own home a few years ago, you probably wouldn't even recognize the form and structure of the owner builder loan today. Simply put, there's a new reality for owner builder construction. If you want to build your own home, then you need to understand the options currently available for financing and assess the advantages and disadvantages to determine if being an owner builder is right for you.

The latest change in owner builder financing occurred when MidCountry Bank decided to indefinitely suspend the origination of any new construction loans. MidCountry was one of the last bastions of nationwide lending for owner builders, and this recent shake-up means that you must now look upon this specialized financing in a whole new light.

When nationwide financing was available, guidelines and rates and terms for owner builder loans were more or less uniform from state to state. If you were building your home in Maine, your cousin in Arizona could basically expect to receive the same guidelines to build his house. In addition, nationwide lending meant owner builder programs were much easier to find. In other words, it was much simpler to find a bank that provided loans nationwide than it was to deal with a multitude of local banks that may or may not provide construction lending at all.

The good news, however, is that there are still owner builder loans available around the country. With tightening capital, lenders have been forced to scale back guidelines and increase costs of specialized products.

Nowadays, you may find that the lender requires a small down payment, as opposed to financing every penny of the costs to build, including closing costs in the past. Or, you may find that the requirements to qualify for an owner builder loan have grown stricter. For example, guidelines nowadays will most surely address specific details, such as the sale of the borrower's current residence or the review of actual bids and estimates.

Despite the tightening of the guidelines, owner builder construction will still provide the same basic benefits that should make the program well worth your time and effort. You will still be able to manage the construction of your new home without having to hire a general contractor. This means you will still earn a large amount of instant sweat equity by cutting out the costs of a GC, and you will still be able to manage the process yourself to ensure the home is built exactly to your own specifications.

Most owner builders will save anywhere from 20% to 35% during construction. If you look at the big picture, these overall savings make owner builder construction still worth your time and effort, despite the increase in financing costs around the country for these specialized loan programs.

So, as much as things have changed, the basics are still the same. If you want to be an owner builder, take a deep breath and always look at the big picture. It helps if you work with someone who knows the financing options and has been through many projects before. Even in today's financing market, an owner builder construction loan doesn't have to be overly complicated. But, you will need to understand the current options available.

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