Owner builder construction loans

Different people come from different backgrounds, and have different likings. Some like plenty of light and ventilation in their homes, while others prefer larger halls with air conditioners and dull lights.

Regular builders keep in mind the latest trends prevailing in the real estate markets and construct homes in keeping with these trends. They have their reasons. Its easier to issue uniform instructions, easier to supervise, and easier to sell. In addition, the windows, doors and fittings can be ordered in bulk quantities because of the uniform sizes. Ordering in bulk enables these builders in getting good bargains, and bringing down costs. Therefore, they are able to offer these homes more competitively .

A major disadvantage of buying a dwelling unit on such mass-scale construction is that it does not fulfill all the aspects of ones dream home. Sometimes the individual may desire a specific view of the beach, or a garden from a bay window. At other time, the individual may buy a small plot of land with his or savings for constructing the dream house. Or inherit a small parcel of land from relatives. In such cases, its not possible for the builder to construct on mass scale and therefore, the price quoted by the builder for constructing the home is generally exorbitant.

The owner of the parcel of land has an option to construct the dream house himself. However, because he has little prior experience in construction, the lenders are skeptical about lending to such an individual. The individual would also find himself running from pillar to post for every plumbing, electrical, and sanitary requirement, not to mention approvals. That is, as an individual, the person may not know from where to get the required labor or what the subcontract agreement covers. Therefore, the customized home project can take considerably longer time for completion, and will be costlier than the conventional construction.

There are, however, quite a few lenders who come forward to finance such constructions. They offer other related assistance such as project consultation, subcontractor addresses, material sources, and rates of various materials to the novice owner builder.

The interest rates on owner builder constructions are higher for obvious reasons. However, the owner should shop for interest rates, because there are many lenders offering such loans at very competitive interest rates . The owner must also crunch the numbers to understand the implications, if any, of the terms and conditions of the loan. For this he can take the assistance of professionals such as advocates, architects, accountants and even realtors. But on no account, should he rely completely on these people, as they could be associated in some way with the lenders .

Only after obtaining the loan sanction should the owner builder proceed with construction activity.

The owner builder should

Prepare a plan of the building and obtain approval for construction thereto from authorities.

Next step is to break up the activities associated with the construction of house into different stages and line them up sequentially.

Third parties can do some activities such as carpentry works and fabrication of window grills simultaneously while other works are in progress. Duly considering such factors, prepare a diagram of the sequence of activities.

Set a schedule for each such activity.

List out the materials required for each activity, and estimate the quantities required of each material at different stages. Also list out the equipment required at each stage and the number of days that it will be required for .

Obtain quotations for all the materials and develop an estimate for construction of the house. Also obtain the quotations for rental of equipments that will be used for construction, and include them in the estimate.

Consult professionals, other owner builders, and different lenders. There will be very useful tips offered by these people.

Having arrived at final estimates, approach the bank or lender for loans. Try to obtain owner builder construction loan as per the progress of construction rather than the whole loan. Most lenders charge only the interest on the amounts released during the construction period, and the installments start only after the disbursement of final installment.

After the loan is sanctioned, do not withdraw the entire amount at one go.

Obtain temporary electrical and water connections because building activity requires curing with water, and electrical connection is necessary to pump the water apart from providing lighting.

Build a small temporary shed for storing material.

Order materials as required in economic order quantities, bearing in mind the storage requirements (cement cannot be stored outside as it hardens with water).

Draw amounts only as per requirement. This will reduce the interest charges.

Lenders may offer owner builder construction loans either on fixed interest rates, or flexible interest rates. Owners must examine the effect of both interest rates on personal incomes and cash flows before accepting the terms.

The owner will have to provide details about his or her rights and title on the lot to the lender. The lender will examine the legal rights, and have it valued . After such valuation, the lender will study the estimated cost of construction . If there are any excesses or shortages, the same will be corrected. Based on the value of the plot and the estimate, the lender will sanction the loan. The owner will have to fill in the gap, if any. The owner will also have to execute necessary mortgage documents covering both the plot and the construction.

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