Five Questions Every Owner Builder Needs to Ask About His Loan

So, you need to make your project as successful as possible. Owner builder construction loans are complicated compared to simple purchase loans or refinance mortgages.

Always ask these five questions before settling on your financing. Therefore, you will need to make sure your construction loan is set up to help you succeed. Acting as an owner builder, you are going to manage the construction of your new home, which is no small job.

1. Does the owner builder construction loan have any monthly consulting fees?

Some loan programs charge a monthly owner builder consulting fee under the premise that the program will provide off-site guidance while you construct your house. Though you definitely want a loan program that will be available to answer questions while you build the home, you don't want to pay a monthly fee to somebody who will never step foot on your job site.

These monthly owner builder consulting fees are simply a way to extract extra money out of the customer during the construction phase of the project. There are enough expenses involved in building a house. You don't need to spend extra money each month for an off-site consultation that you may or may not ever use.

Obviously, like any other loan program, owner builder construction loans will have fees associated with the program. But, these fees should be a part of the financing, just like other construction loans. You shouldn't have to pay additional monthly consulting fees for the pleasure of being an owner builder.

2. Are there a limited number of construction draws for an owner builder?

During construction, an owner builder will typically take anywhere from eight to thirteen draws to get their home built. Unfortunately, there is no method of truly knowing the exact number you will need until you are done building the home. This is because owner builder construction involves paying sub-contractors as you complete individual construction items.

For example, an owner builder will want to pay the foundation sub-contractor once the foundation is completed. Likewise, you will pay the framing crew once the rough framing is done. As you can imagine, there are countless examples of different steps needed to build your house.

Therefore, you need to make sure that your owner builder construction loan does not limit the number of draws that you can take during construction. Some programs will only allow for five or six draws. That means that you have to get sub-contractors to wait until you have completed large portions of the construction project before you pay them. Or, as the owner builder, you will have to pay them out of your own pocket until the loan program reimburses you.

It is much easier on your wallet if you make sure your loan program provides unlimited draws to allow you to reimburse your sub-contractors as each individual construction step is completed. It will keep your sub-contractors happy and keep money in your pocket.

3. What is the loan 's down payment requirement for being an owner builder?

Some owner builder construction loans have excessive down payment requirements for you to build your own home. Often, you will have to make a down payment in excess of 20% to qualify for the program.

With these types of requirements, an owner builder is often left with very little cash in his own bank account. This can mean trouble during construction. No matter how well you plan your project and your budget, there are always going to be some cost overruns here and there.

Overall, an owner builder will save a ton of money, and these minor cost overruns are no big deal. However, if you have depleted your cash by making an excessive down payment, you will be hard pressed to cover the extra amount of funds required to get your home built. This could lead to over use of your credit cards and even hurt your credit scores.

4. How many closings does this owner builder loan require?

You definitely want to make sure your owner builder construction loan has only one closing. It is possible to find a program that has two closings - one for the construction phase, and one for the conversion to the permanent loan.

However, two closings will cost you extra money once your house is built. With two closings, you will need to pay for two sets of closing costs, including points, title work, closing agent fees, recording fees, etc.

But, if you can find an owner builder program that will wrap the two loan phases into one closing, then you can save yourself some time, money, and headaches. In fact, some programs will even finance your closing costs to minimize any money you have to pay out of your pocket.

5. Does the owner builder construction loan require me to have a site supervisor or hire sub-contractors from an approved list?

Unfortunately, there are owner builder loan programs available that will not allow you to hire any sub-contractor or material provider that you would like to hire. By forcing you to hire sub-contractors from a list of approved contractors, the program is limiting the amount of savings you can achieve.

An owner builder saves a lot of money by shopping for the right sub-contractors and material providers to build his house. Sometimes, you will get four or five quotes for a particular piece of the puzzle. For example, you may look at four or five plumbers before you choose the one you want.

If you are limited in the contractors that you can hire, you will not have the flexibility that you need to be as successful financially as you wanted. Similarly, if an owner builder must hire a site supervisor to help manage his project, there will often be a required payment involved. If you have to pay a site supervisor thousands of dollars, then that is equity that you are losing in your home.

But, if you can be a successful owner builder without a site supervisor, then wouldn't it be nice to have a loan program that gives you the option? By all means, if you need a site supervisor to help you with the construction of your home, then they are worth the money.

Without the right loan features, it will be very difficult for any owner builder to be successful. Therefore, every owner builder needs to ask these five questions when looking for the right construction loan program.

Which Loan For Me?

These financing agencies may be corporate banks, commercial banks, mutual banks and mortgage companies. For them there are different financing agencies who offer a wide range of no cost loan options. But they want to make it big in the financial market.

There are many people who do not have ready cash in hand.

Some of these no cost loan programs are more industry oriented. One aspect of one loan method may or may not be beneficial for your business. Some of these no cost loan options has their distinct specialties. One aspect of one loan method may or may not be beneficial for your business.

Some of these no cost loan options has their distinct specialties. One aspect of one loan method may or may not be beneficial for your business. Some of these no cost loan options has their distinct specialties. One aspect of one loan method may or may not be beneficial for your business. Some of these no cost loan options has their distinct specialties.

One aspect of one loan method may or may not be beneficial for your business. Some of these no cost loan options has their distinct specialties. One aspect of one loan method may or may not be beneficial for your business. Each of these no cost loan options has their distinct specialties.

This means your business may not have the criteria required for the no cost loan you are applying for. This is where we should take the professional advice. They determine the type of no cost loan which will be most appropriate for your work.

They also work towards achieving the goal of acquiring the loan. They have a very wide network of lending institutions. Many of them have very flexible criteria for the borrowers. In other words, even if you have some problems with your last loan still you can get a no cost loan after working out a solution with them.

Different type of financing companies offers different type of loans. For example: Acquisition & Equity financing: When a company wants to purchase another company or desire for a merger then acquisition loan can be obtained.

This no cost loan can be partial that is the left over money required to complete the transaction. The merger or acquisition can also be fully financed. This no cost loan type requires creative loan structures which may be required to fulfill the collateral needed in order to acquire the loan and it totally depends on individual situations.

Companies going for venture capital or developers opting for gap funding go for Equity financing. Whenever there is a void gap between existing debt and required debt which allows the company to obtain 100% financing for a project Equity financing is used to fill it up.

Accounts Receivable - Factoring: Some medical related companies such as hospitals, urgent care facilities, long term care facilities etc. which require consistent cash flow can aptly go for this type of finance programs. Some other commercial related companies such as manufactures, janitorial services, staffing agencies, consultants which provide businesses to other businesses houses can also opt for this no cost loan program. These programs are highly flexible.

Asset Based Loans: These loans are secured by real estate and are short to mid term (1-5 years). Inventory, stocks, equipment, and other assets can also be used to secure such loans. The rates of this type of loans differ according the circumstances. Companies mostly opt for this loan when bank rejects a former loan request due to less creditable scores of the companies as they already have one or other financing currently in place.

Bridge & Mezzanine Loans: These are short term loans. There is always a time gap between the date of starting a project and getting the traditional financing. This time gap is filled up with these types of no cost loans. These loans are secured via stock within the company.

Hard Money Loans: These types of loan are required by the companies involved in construction projects but are unable to secure the no cost loan amount needed with their asset base. These are short term no cost loans and have a medium to high interest rate. It often requires personal guarantees.

Personal loans: If you have good credit and can show ability to repay a loan you may qualify for a personal loan or signature loan, these types of loans may be more expensive because of the higher risk of default. The advantage of this type of loan is most banks can process the paperwork in one day so if you are in need of cash fast this may be your best option.

PO & Inventory Financing: These types of loans are very expensive. These are obtained mostly by companies who already have a factoring program running or have built up a secure connection with a finance company. These are particularly best for companies which have a very high profit margin. The interest rates are often very high.

This loan is also appropriate for small businesses that are running for at least two years. SBA Loans: These loans are backed up by the government for minority, women, and startup programs.

These are the different types of loans an individual or a business can get to fulfill their project needs.