Financing the Owner Builder

As an owner builder, you will most likely need to borrow money. However, most lenders tend to be very strict about financing an owner builder, while many will not lend to an owner builder at all.

Many Owner Builders end up wasting precious time and money, trying to find out which lender to go to, and who has the best rates available.

As time is often of the essence, it is important that the person you speak to, knows what they are talking about. This can be difficult in an industry where everyone makes the claim “if we can’t get you the money, no one can”. Unfortunately all brokers were not created equal!

How much Can You Borrow?

Whilst lending criteria varies from lender to lender, as a general rule, with an owner builder loan the lending institution will allow you to borrow up to 80% of the LVR (loan to value ratio).

Lenders would usually use one of the following to determine the value of the project.

  • Lender A) Hard Costs
  • Lender B) End Value
  • Lender C) Hard Costs & End Value – The lesser of the two.

Hard costs are defined as being the actual cost of the land and the actual cost to construct the house. End Value is the property’s overall value once construction is completed. This is determined by a valuation report on completion

For example

Client “Jim Brown”, purchases land to the value of $250,000. The cost of constructing his home is $500,000. His total hard costs are $750,000.

Once Jim’s home is completed and valued, the valuation comes in at $850,000.

  • If Jim was to use Lender A, he would be able to lend 80% of his hard costs. His maximum lend would be $600,000 (being 80% of $750,000.00).
  • If Jim was to use Lender B, he would be able to lend 80% of the property’s value, once completed. In this case, Jim’s maximum borrowing capacity would be $680,000, being 80% of $850,000.00
  • If Jim was to use Lender C, lender uses a combination of these two factors, the lesser of the two values would normally be used. In Jim’s case, this would bring his maximum borrowing down to $600,000.

Progress Payments

Lenders usually advance funds in five to eight stage payments. Most lenders will use five progress stages. Stage payments are always in arrears of the work completed and never prior to.

The lender instructs a valuer to go out to the site and value the work completed. Some lenders pass this cost on to the borrower. Most however, cover this expense themselves. Where the costs for valuations are the borrowers’ expense, the amount would usually be in the vicinity of $250 – $300 per valuation.

Whilst the amount advanced by the bank at each stage is determined by a valuation, the stages would usually be broken down as follows:

    Slab 20%
    Frame 20%
    Lock Up 30%
    Fixing Out 20%
    Completion 10%


As an Owner Builder, there is specific documentation you will need to provide. Typically, this will include:

    • A full set of DA approved plans
    • Full specification & finishing schedule
    • Construction Certificate (CCC) where applicable
    • Any engineering detail
    • Estimated breakdown of costing. (Your mortgage broker should be able to provide you with a template for this)
    • Owner builders warranty and public liability
    • Resume of any building experience you may have

Depending on the LVR (loan to value ratio), you may be required to get a QS report. This would be at the borrower’s expense and in the vicinity of $500 – $2000.00 depending on the complexity of the project and the value of the property.

As an Owner Builder, you have an extensive range of loan packages available to you, including Low Doc & No Doc Loans!

Where possible, seek mortgage advice prior to starting construction. The person you seek advice from should have considerable experience with Owner Builder finance, as it is a specialized field.

A Few Tips to Remember:

  • Where possible, seek mortgage approval prior to starting construction with a specialist in Owner Builder Finance. (
  • Whilst finance can be obtained part way through construction, the process is simpler if approval is obtained prior to any work commencing on the site
  • Documents needed include: DA approved plans, specifications, engineering detail & estimated breakdown of costs.
  • Keep your costs realistic
  • Keep lending under 80% LVR

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