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The Successful Owner Builder

Not every person is able to take on the role of an Owner Builder.  Here is a list of the characteristics that will most likely lead to a successful project:  

1. strong organizational skills
2. a take-charge personality
3. the ability to negotiate with, hire and manage subcontractors
4. time to devote to the project - approximately 15 -20 hours per week
5. the stamina to persevere when things do not go as expected
6. the vision to complete the project

If these characteristics describe you, then being an Owner Builder may be a challenging and rewarding experience.  If you do not have the time or the inclination to get involved in construction, then hiring a general contractor may be the best way to build your dream house.  We have many loan programs for people who hire a general contractor.

Getting Started 

If you decide that you are ready to become an Owner Builder, then here are the steps that you will need to take to build your home.

1. Contact Us to Discuss Financing Options
2. Complete an Application & Obtain Credit Report
3. Obtain Building Permit Instruction Packet
4. Locate Land for Purchase
5. Verify Zoning
6. Interview & Hire Site Supervisor
7. Sign Purchase Agreement for Land
8. Design & Draw Plans
9. Create Budge & Breakdown of Costs
10. Forward Documentation to Lender
11. Submit Plans & Complete Permit Application
12. Appraisal
13. Funding of Loan
14. Start of Construction
15. Inspections
16. Final Inspection & Certificate of Occupancy
17. Loan Converts to Permanent Mortgage

Contact Us to Discuss Financing Options

To discuss your financing options, call us for a free consultation at 1-800-438-2704. Or click here.

Postponing a discussion about your options could be a costly mistake if you are planning on getting financing for your project. For starters, spending money on the project before you obtain a loan could deplete the reserves that will be required to qualify for a loan.

Lenders typically require that you show proof of liquid assets sufficient to pay principal, interest, property taxes and hazard insurance for 6 months (reserves). If you deplete your reserves by paying construction costs, than you may not be able to qualify for financing. Another risk of starting construction is the effect that it may have on title.

A title insurer may not be willing to issue a title policy because of the possibility that a mechanics lien may be recorded against the property for unpaid labor and materials. If a title insurer will not issue a policy, then the lender will not approve your loan. Lenders may also decline your application for a construction loan because they are not able to inspect certain building components to determine whether they conform to your plans and specifications. It is also possible that the contractor your hired for the project does not meet the lenders' requirements to qualify your project for financing.

Complete an Application & Obtain Credit Report

Once you decide that you are serious about building a home, you will need to fill-out an application and obtain a credit report.  The application can be taken by phone and typically completed in 5 minutes or less.  It is also important to obtain a copy of your credit report because often times there are mistakes in the reports and correcting them takes time.   We offer free credit reports.

Obtain Building Permit Instruction Packet 

As an Owner Builder, you will become quite familiar with your local building department (or community association if you are building in a planned unit development).  To begin the process, you should obtain and review a  permit instruction packet.  The information in the packet will explain the permit process and the documentation that you will need to get a permit for your project.   

Locate Land for Purchase

Finding the perfect place to build your dream home requires some thought.  Aside from the increased cost of building on certain lots, if you are financing your construction, then you need to consider whether the home you are building is suitable for the neighborhood.  Loan amounts are capped by the appraisal value of your future home.  If the home that you are building does not conform to the neighborhood, then the appraisal will be reduced accordingly.  Click here for tips on purchasing a land lot.

Verify Zoning 

Before you purchase your new home, it is a good idea to verify the zoning for the land and your project.  The most accurate information about zoning can be obtained by visiting the zoning counter of your local building department.  Zoning laws are complex and it is better to verify the zoning necessary for your project before you commit to the purchase of a lot or spend money on plans. 

Interview & Hire Site Supervisor

If you are not a licensed contractor, then you will be required to hire a Site Supervisor to assist you with managing the construction.  Site Supervisors must meet certain requirements in order to be approved by the lender.  Site Supervisors are paid either a flat fee or on an hourly basis and their fee is substantially less than the 10% - 25% fee charged by a general contractor.  The best place to look for a Site Supervisor is by contacting friends and family members and asking for referrals to qualified individuals.

Sign Purchase Agreement for Land

Once you choose a lot and verify the zoning, you will need to sign a purchase agreement.  If you are getting a combination construction loan that will finance the purchase, construction and permanent loan, then you should make sure that your closing date will give you sufficient time to obtain approved plans.  If the seller of the lot is not willing to delay the closing, then you can obtain a purchase loan for the lot and a separate "construction to permanent" loan when you are ready to build.  The "construction to permanent" loan may be used to refinance the lot, pay for construction costs and convert to a permanent loan at the completion of construction.

Design & Draw Plans

After you purchase a lot, you will need to design your project and draw plans.  There are a variety of companies that offer home plans via the internet, software and magazines.  Once the plans are drawn, you are ready to submit them to your local building department.  The required plans will generally include a plot plan, floor plan, framing plan, foundation plan and other documents that are specified in the permit instruction packet. 

Create Budget and Breakdown of Costs

You will need to meet with subcontractors and obtain bids or quotes for the work.  With the assistance of your Site Supervisor, you will prepare an itemized cost to build statement.  This is your budget for construction and it is a good idea to include a contingency reserve for costs due to unforeseen circumstances or overruns.   Some lenders require a contingency reserve of 5% and if it is not used, then the reserve is forgiven by the lender.  No interest is owed on the reserve until it is actually disbursed.

Forward Documentation to Lender

As part of the loan process, you will be required to provide documentation regarding your income and assets.  The quicker you get this documentation to the lender, the quicker the loan will close.

Submit Plans & Complete Permit Application

Take your completed plans package to the local building department for a plan check.  You will either be issued a building permit or advised as to the further action that is needed for a permit.  In addition to the building permit, you will need separate permits for plumbing, electrical and heating. 

Appraisal

Lenders require an appraisal to ensure that the loan amount is supported by the future value of the home.   The appraiser will review your plans, compile comparative sales data and prepare a written opinion as to the future value of the home. 

Funding of Loan

After all of the supporting documentation is received for the loan, your construction funds will be available according to a draw schedule.  Draw schedules are on a reimbursement basis.  In order to get your project started, lenders typically disperse 5% of the construction hard costs and funds for some of the upfront costs such as permits.  A subsequent disbursement is made when the home is 10% completed.

Start of Construction

Now that you have approved plans, building permits and financing, you are ready to begin construction. 

Inspections

The lender and the city will inspect your project at various points during the construction. The lender inspects prior to certain loan disbursements in order to ensure that the work is done according to your plans and specifications.  The city inspector will inspect the project at various stages in order to make sure that the work is proceeding according to the plans and in compliance with building and safety codes and regulations.  The city inspector has the power to issue a "stop work order" if violations are found.

Final Inspection and Certificate of Occupancy

When construction is completed, a final inspection will be performed by the city inspector and a certificate of occupancy issued.

Loan Converts to Permanent Mortgage

After the last draw is requested and the certificate of occupancy has been issued, your loan will be ready to convert to a permanent mortgage.  In addition to a requiring copy of the Notice of Completion and proof of homeowners insurance, the lender will do a title search to confirm that no mechanics liens are pending against the property.  If none are recorded and the required paperwork is submitted, your loan will convert to a permanent mortgage.  The rate for the permanent mortgage and the selected program depends upon the lender.  Rates may be locked at the beginning of construction or during construction.  Some lenders allow your rate to float until you lock-in a rate.  Whether there is a charge for letting the rate "float" depends upon the lender.