Planning to build your home from scratch or make some major renovations? As you may be already aware – you could either hire a builder or choose to take charge of the building work yourself. Of course, the former might be a less tedious option, but the latter could turn out to be cheaper and give you full control over building the house of your dreams.



Welcome to the world of owner builders. However, the picture is not as rosy when it comes to financing your dream as an owner builder. In fact, you might be surprised to know that unless you are a licensed builder, most banks will not entertain your application for a construction loan.

That being said, every year, hundreds of Australians choose to construct their own houses and successfully take out owner builder mortgages to finance their dream. It is true that lenders perceive owner builders as high risk as construction delays or half-finished projects are not very rare. However, by projecting detailed timelines, you can convince the lenders that your home will be built in time, without overrunning the budget.

How much can I borrow?

Lenders are not very generous when it comes to owner builder loans, but most would approve an amount covering 60% of your total costs. Thus, you need enough savings to cover the remaining cost so that the construction is not stalled midway. Of course, with a parent guarantee, you could borrow 100% of the costs as well.

Should I seek pre-approval?

Yes, it makes sense to approach your lender for mortgage pre-approval, as it will tell you how much you can really spend on land and construction, in total. Armed with this knowledge, you can now gauge whether an owner builder loan is a good choice for you or would you rather hire a builder to construct your home, in which case, you could apply for a higher LVR construction loan.

How to apply for an owner builder loan?

An owner builder mortgage is a great option for people who intend to build their own home without the help of a licensed builder.

Considering owner builders as high-risk, most lenders tend to limit the loan amount to 60% of the total costs. To approve the loan, the lender takes into account the value of the vacant land and the estimated cost of construction instead of the actual completed value of the house.

Thus, it is important to present an accurate cost estimate for your project, with a 10-15% contingency buffer built in.

A mortgage broker could help you in this regard by including important information in your home loan application such as any experience in the industry, any sub-contract you have taken out with a licensed builder, and the completed value of similar properties in the neighbourhood, making your case much more convincing. Contact an experienced broker, now.

What documents are needed?

Apart from the documents needed for applying for a home loan, you would need the following additional documents to apply for a home loan as an owner builder:

  • A detailed project plan
  • A copy of your owner builder permit
  • An estimate of your construction costs and budget
  • A copy of your builder’s insurance

Tip: Do not start constructing your home unless your home loan is officially approved, as most lenders will not finance your home once the construction has started.

How do construction loans work?

Generally, once your application for an owner builder home loan is approved, you are required to make the initial contribution by cash, and the lender releases the remaining funds progressively.

Unlike a traditional mortgage, the payments are released in parts at pre-decided intervals that are usually the typical construction milestones. After the completion of each stage, a valuer will assess the work before the lender releases the next payment.

Usually, the following five stages of construction are considered for drawdown:

  • Purchasing the land
  • Base/Foundation
  • Roof (including frames)
  • Fittings
  • Completion

Tip: Before signing up for an owner builder mortgage or construction loan, check the amount of progress fee charged by the lender.
Some lenders will charge up to $250 per payment while others may charge a one-off fee.

Good to know:

  • When you apply for a construction loan, more often than not, lenders place restrictions on time allowed to complete the construction. Usually, there is also a timeline within which construction on a vacant land must commence. Be careful before signing the dotted line, and ensure that you honour the agreed time restrictions or request for an extension promptly.
  • Your home loan approval is contingent upon the building plan shared by you. In case there are any changes in the building plan during the construction period, you must notify the lender of these changes in earnest, as the lender may want to reassess the project.

As an owner builder, it may seem daunting to seek finance for constructing your home, however, with a little bit of planning and an expert by your side, there is a greater likelihood of your home loan application being granted. If you’re looking for finance to construct your home, get in touch with a mortgage broker to improve your chances of approval. Compare broker pre-negotiated home loan deals here.


By Vidhu Bajaj
HashChing Content Writer


HashChing is helping Australians by providing access to the pre-negotiated home loan deals. Obligation free consultation with one of our partner brokers might save you time, hassle and money.