Construction Loans-Owner Builder Financing Update

“Carl - it seems impossible to be able to get a bank to let you be your own GC these days. I think I can do this, but the banks want a certified builder/contractor and a contract. Are the BYOH days over? Do you have any suggestions?Thanks,

Hi Sean,
No, the days of Owner/builder construction loans are NOT over, and yes I do have suggestions.

There are many people building their own home as we speak (I get their questions).

The Construction Lending world has changed, as have so many other worlds.

In my article (post) called “Construction Loans-Back to the Future” I commiserate with all you folks out there “looking for loans” but, “it’s not as tough as it was back in 1972, when I (finally) got my first construction loan, and yes, I was an owner builder!”

The best place to start looking for an Owner/builder construction loan is in your own “backyard”.

Local banks and credit unions (By local bank, I don’t mean a branch of a national bank) have always been your best bet for banking and getting loans. Establish a banking relationship with one near you. Talk to them! Let them get to know you.

There are also still a few national companies out there, like OBLS and Normandy, and probably a few others. Read the “fine print”. Call them. Ask questions. Be informed.

Some of these companies are limited to select states and most of them require you to work through a local Mortgage Broker which will of course, increase the cost of the loan, but should make the process of applying for a loan move along faster and more easily.

Every Construction Lender, local or national will require you to:
1. Have stellar credit. Stellar!
2. A low debt to income ratio (dti).
3. 25% cash down (or more). In some cases, land equity can be all or part of this requirement.
4. A good job history with good to excellent job security.
5. Plans & Specifications.
6. A thoroughly completed cost to build (cost estimate). Actual written bids from suppliers and subcontractors, if not required, would be a good idea to have.
7. Exude confidence that you can “get the job done” and that the only thing missing is “the money”.
8. Anything else that a particular lender may require.

You get the idea.

Even professional builders are going to have to meet these requirements now.

That’s the way it was and now, that’s the way it is.

Of course, you could also try to find “private money” from a friend or relative. It’s done all the time and is the least expensive and most hassle free way to obtain construction financing.

Remember: “where there’s a will, there’s a way”,
Carl Heldmann,