Over the last couple of years, as liquid capital has been evaporating from the pool of mortgage financing around the nation, owner builder construction loans have been morphed and altered dramatically. If you built your own home a few years ago, you probably wouldn’t even recognize the form and structure of the owner builder loan today. Simply put, there’s a new reality for owner builder construction. If you want to build your own home, then you need to understand the options currently available for financing and assess the advantages and disadvantages to determine if being an owner builder is right for you.

The latest change in owner builder financing occurred when MidCountry Bank decided to indefinitely suspend the origination of any new construction loans. MidCountry was one of the last bastions of nationwide lending for owner builders, and this recent shake-up means that you must now look upon this specialized financing in a whole new light.

When nationwide financing was available, guidelines and rates and terms for owner builder loans were more or less uniform from state to state. If you were building your home in Maine, your cousin in Arizona could basically expect to receive the same guidelines to build his house. In addition, nationwide lending meant owner builder programs were much easier to find. In other words, it was much simpler to find a bank that provided loans nationwide than it was to deal with a multitude of local banks that may or may not provide construction lending at all.

The good news, however, is that there are still owner builder loans available around the country. With tightening capital, lenders have been forced to scale back guidelines and increase costs of specialized products.

Nowadays, you may find that the lender requires a small down payment, as opposed to financing every penny of the costs to build, including closing costs in the past. Or, you may find that the requirements to qualify for an owner builder loan have grown stricter. For example, guidelines nowadays will most surely address specific details, such as the sale of the borrower’s current residence or the review of actual bids and estimates.

Despite the tightening of the guidelines, owner builder construction will still provide the same basic benefits that should make the program well worth your time and effort. You will still be able to manage the construction of your new home without having to hire a general contractor. This means you will still earn a large amount of instant sweat equity by cutting out the costs of a GC, and you will still be able to manage the process yourself to ensure the home is built exactly to your own specifications.

Most owner builders will save anywhere from 20% to 35% during construction. If you look at the big picture, these overall savings make owner builder construction still worth your time and effort, despite the increase in financing costs around the country for these specialized loan programs.

So, as much as things have changed, the basics are still the same. If you want to be an owner builder, take a deep breath and always look at the big picture. It helps if you work with someone who knows the financing options and has been through many projects before. Even in today’s financing market, an owner builder construction loan doesn’t have to be overly complicated. But, you will need to understand the current options available.

Chris Esposito specializes in owner builder construction loans, providing financing through the Owner Builder 101 program. If you would like to learn more about building your own home without the costs of a GC, visit OwnerBuilder101.com, or call (877) 876-3688.

So, how do so many people mess it up so badly? Simply put, people lie (either to themselves or about themselves) when filling out a loan application.

We’ll look at examples from customers who applied for owner builder construction loans, but the principles of filling out a home loan application will apply equally well to anyone who wants a loan to buy or refinance a home.

Owner builder construction loans are for individuals who wish to build their own house without having to hire a general contractor. Therefore, they manage the sub-contractors themselves and oversee the project.

However, an owner builder loan application is no different from a standard purchase loan or refinance loan application. Almost every bank across the country will use a form known as a Uniform Residential Loan Application, also known as a 1003.

On this 4 or 5 page form, you simply fill in information about your financial situation. On the first page, you’ll cover simple info about the property as well as information about your address, phone, social security number, etc.

The second page will cover your work history and income. The third page will cover your assets and your monthly debts. All in all, the process is not difficult. In fact, anyone, whether you are an owner builder or someone looking to refinance an existing home, can fill it out without too much difficulty.

Therefore, the mistakes that are seen on owner builder loan applications be due to reasons other than misunderstandings. Indeed, almost every mistake occurs when an owner builder decides to embellish his qualifications or thinks it’s unimportant to be as accurate as possible.

You may be asking yourself why it’s such a big deal. Why should you care if you round off your numbers on the application? After all, it’s just a pre-approval. The bank will collect all of the real paperwork later on.

Here’s an example from a recent owner builder loan. A loan applicant decided the pre-approval was not worth his time to provide detailed information about his financial situation. He rounded up his income and failed to mention the child support payments that he is obligated to make each month.

In the case of this owner builder, the application was pre-approved quickly and easily. Why wouldn’t it be? On paper, everything looked great. But, when the bank started collecting the official income documentation and discovered the child support payments being deducted from the pay stubs, the borrower no longer qualified for the loan.

Not a big deal, right? Wrong. This owner builder had already put money down on a piece of land that he wanted to buy as well as purchased blueprints for his new home he wanted to build. Imagine the frustration and anger he caused himself when he found he was no longer qualified for the loan and he lost the money he wasted on blueprints.

Even though this is an example from owner builder construction, it still applies to anyone filling out a Uniform Residential Loan Application. Imagine you are buying a home and make a large earnest money deposit on the house you want based on getting pre-approved from your bank. Now imagine that your pre-approval is based on inaccurate information that you told the bank. In fact, imagine that you also wasted money out of your pocket for the home inspection and the appraisal.

So, what can you do? Whether you are looking for an owner builder construction loan or any other type of mortgage: tell the truth.

Do not think that embellishing your financial picture will help. It will only hurt you in the long run when the lender discovers the errors. You are better off getting an accurate pre-approval based on accurate information.

And, if you are unsure about your exact income numbers or your exact amount of assets, then estimate conservatively. That way, if your income or assets turn out to be higher than you estimated, you will still be approved and qualified for the loan program you are counting on. It works for owner builder construction loans. It works for refinances. It works for home purchases. It works.

In fact, one great piece of advice is to supply copies of your W2 forms, your pay stubs, and your asset statements when getting your pre-approval. Many customers, not just owner builder customers, don’t want to take the time to do this, because it’s a hassle. But, your loan officer can use these documents to ensure the pre-approval is based on accurate calculations. Besides, you are going to have to submit these documents for underwriting anyway.

For example, a recent owner builder borrower took the time to submit his pay stubs when he applied for his construction loan. A big portion of his income came from bonus pay. It turned out that he could only get credit for the average of his bonus pay over the last two years, in addition to his full base salary. Therefore, his gross income was calculated slightly lower for the loan that he thought it would have been.

In this case, the owner builder fortunately still qualified for the construction loan. However, you can see how miscalculating income can lead your pre-approval to be inaccurate. Therefore, don’t take any chances. Submit your documentation paperwork when you fill out the application.

So, if you are thinking of applying anytime soon for a mortgage for a home purchase or a simple refinance, then take a lesson from the world of owner builder construction loans. Do not discount the importance of providing accurate information about your financial situation on the Uniform Residential Loan Application. The pre-approval is a quick and easy process, but it’s also a very important one. Owner builder construction loans are no different in this respect.

Chris Esposito specializes in owner builder loans, helping people act as their own general contractor to build their homes. Visit Owner Builder 101 for more information about owner builder planning and financing. Go to OwnerBuilder101.com, or call (877) 876-3688.

These counties are known in the mortgage industry as soft markets, and they are having a big effect on your owner builder loan terms whether you recognize it or not. If an owner builder wants to build his home in a county that is listed as a soft market, then he should expect to have different financing guidelines than someone who is building in a county that isn’t tagged as being an area of declining home values.

It’s a tough pill to swallow for someone who is caught in this situation, but the guideline changes are based on prudent lending principles. The biggest change that an owner builder needs to be aware of is the requirement for a larger down payment than normal.

For instance, if you are building your new home in a soft market, then you can expect to make a down payment of at least 10%. If your normal owner builder construction loan guidelines were for a 10% down payment to begin with, then you may have to put an additional 10% down.

For example, if you are building a home with an appraised value of $250,000, and your loan terms called for a 10% down payment of $25,000, then you may find in a soft market area that you have to actually put 20% down, or $50,000. If you are getting an owner builder construction loan that typically requires no down payment, expect a 10% down payment for any construction in a soft market.

Why is this fair? Look at it from the lender’s point of view. They are putting up a lot of money for you to build a home in an area where loan values are decreasing. Therefore, in order for them to still be able to provide loans, they need borrowers to cover the possible value decrease by bringing some cash to the table.

By requiring owner builders to make an extra 10% down payment, lenders are protecting the loan-to-value ratios in the event that the house value decreases by the time you are done building it.

It helps to look at it this way: the revised guideline for soft markets is actually a good thing. The alternative is that a bank refuses to provide owner builder construction loans in any county that is tagged as a soft market. Then, you would not even get the chance to build your new home.

Therefore, if you are an owner builder who wants to build your new home in an area that is a soft market, at least you still have some options with your construction loans. If bringing an extra 10% down payment is not a possibility for you, do not fret too much. The really good news is that the list of soft market counties around the nation is drastically decreasing in size.

Though there are no guarantees, the mortgage industry is hopeful that the list will be shrunk to a bare minimum size in the next six months or less. Once home values are done dipping, the counties will no longer be considered soft markets. Once this happens, owner builder construction loans can go back to their standard guidelines and down payment requirements.

If you are an owner builder, you are probably wondering if your county is affected by these soft market designations. The only way to find out for sure is to speak directly to the construction lender who provides the owner builder loans. They will be able to tell you for sure if your county is on their soft market list.

In general, owner builder construction loans in Florida, California, and northern Virginia are the ones that are affected the most. However, there are still plenty of other states that have counties with soft markets.

Therefore, do your best to get this information up front from your owner builder loan officer. Don’t wait until it is too late to find out that you have to bring extra cash to the closing table.

Owner builders who fully understand the effects of building in a soft market can plan around the guideline revisions and still build their dream homes, saving tens of thousands of dollars in construction costs. But, an owner builder who does not pay attention to the realities of the new market conditions will be the one to suffer the consequences.

Chris Esposito provides owner builder construction loans to allow individuals to build their own homes without paying for a general contractor. To get more information, go to the Owner Builder 101 website at OwnerBuilder101.com, or call (877) 876-3688.

If an owner builder does not account for some extra time required in his financing and planning stage, he runs the risk of falling behind schedule on the construction project or, worse, losing the land that he wants to build on. Therefore, understanding the reasons why an owner builder construction loan requires a longer timeline will save an owner builder from potential disaster.

The first, and main, reason that your owner builder loan will take longer than a simple purchase loan is that you, the owner builder, will need a longer time to prepare for it. Unlike standard mortgages, an owner builder construction loan will require you to choose your home plans and put together a detailed budget to build the house.

There is no way around it. You will need extra time to find the right home plans for your dream house. Depending on the source of the blueprints, an owner builder can take anywhere from a week to a couple of months to get the home plans finalized.

If you are purchasing plans from an online source, then you will have your blueprints within a week or two. However, if you decide to make modifications to the plans, it could take a month or more to get the revisions. Likewise, if an owner builder needs to get those online blueprints engineered to meet local building codes, then he needs to account for extra time to do this.

Whereas online blueprints can be a fast process, an owner builder who hires an architect to design his home from scratch may need a couple of months to get it right. The length of this process will depend largely on the amount of time that your architect requires for the design, as well as the number of revisions that you request as the future homeowner during the design process.

Now that you have your blueprints finalized, your job as the owner builder is to put together budget numbers to build your dream home. It’s not a complicated process, but it does require time for you to get written price quotes from your local sub-contractors. The best way to do this is to provide a set of blueprints to the sub-contractor and wait for him to get back to you with a written estimate for his labor or materials.

The budgeting and bidding process can take an extra few weeks for an owner builder. But, if you don’t take the time to do it right, you will be setting yourself up for failure during construction. That’s why it’s so important for an owner builder to understand the extra time required in his planning as compared to a simple purchase or refinance loan that doesn’t have any blueprint or budgeting requirements.

In addition to a longer planning phase, an owner builder construction loan will also have a slightly longer underwriting timeline. The extra time requirement is due to the fact that owner builder loans basically require two underwriting approvals – one for the borrower’s qualifications and one for the project itself.

In other words, even the most qualified owner builder client is not going to get through underwriting if he is building a home with a sub-par appraisal or budget. On the other hand, a very weak borrower will not get approved in underwriting just because he is building a home with a great budget and appraisal. Therefore, both sides of the underwriting approval process are equally important.

The extra time needed for owner builder planning and underwriting is not a big deal as long as you understand the reasoning behind it and plan accordingly. If an owner builder understands the timeline, he can plan for a successful project. But, an owner builder who thinks his construction loan is the same as a simple purchase or refinance mortgage is going to set himself up for failure right from the beginning.

Chris Esposito provides owner builder construction financing nationwide through his Owner Builder 101 program. Visit OwnerBuilder101.com to get all the information you need to be a successful owner builder, saving tens of thousands on your next home. Or call Owner Builder 101 at (877) 876-3688.