How do valuations work with owner builder loans?

One of the key pieces of information Banks and Financial Institutions use to assess loans is the End Market Value which, as the name suggests is the value of the property once the renovation or build is completed. When valuing a standard construction home loan contract – the sums are easy. Add the value of the property to the value of the land. In the case of an owner builder valuation, however things aren’t so easy. The value of the land might be easy to determine but the value of the property may be significantly more than the owner builder is paying.

If, by owner building you can reduce the hard cost of the construction (which, let’s face it is often a major point of the exercise), you can run the risk of the End Market Value being reduced as well. In many cases, Banks won’t accept the fact that you are building your house for a certain amount of money but if you were to go through a builder, the same house would cost significantly more.

When assessing the value of the finished owner builder project, the role of the broker becomes extremely important. It becomes his or her job to present the information in such a way that banks can easily and quickly see the value. A good broker will know the questions that banks will ask and answer them with market based data using information such as local property values, price per square metre and similar building quotes.

By using a specialist broker when obtaining finance for an owner builder project, you are more likely to present your application information in a way that banks and financial institutions are more likely to approve. Rather than doing the valuation sums by rote, banks will see that the value you are putting into your owner builder project far outweighs the actual dollar cost.

A good owner builder finance specialist will also ask questions that help make the project look more appealing. Do you have experience in the area? Have you done a similar project before? Do you have a trade? Are you a project manager? Do you have significant contacts within the building industry that can help make this owner builder project a reality? If the answer to any of these questions is yes, a stronger application can be made to the banks so that you can increase your chance for your owner builder project to be approved.

If you don’t have experience as an owner builder or as a tradesperson, all is not lost but specialist financial advisors can help you formulate other ways to enable your owner builder finance to be approved. Maybe you could find a builder who would be happy to work with you for a fixed fee to ensure you that you have a specialist on hand to iron out any bumps or area where you don’t have the right information. Alternatively, you could look at educating yourself so that you do have the right skills to see the project through.

Another are that a specialist owner builder broker may consider is what are property prices doing in the area of your project. Was your property particularly undervalued when you bought it for our owner builder project? Have you been sitting on the property for a time and the value of the land has appreciated so you now have significant equity within the property? All of these things will make it easier to successfully gain an owner builder loan.


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