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A Lesson in Time for Owner Builder Loans

Jul 25, 2008
Owner builders save themselves a lot of money by managing the construction of their homes and cutting out the costs of a general contractor. However, for owner builders who have never built before, there is a very important lesson to learn about the owner builder loan timeline before getting too far into the planning process.

Owner builders need to be realistic about their planning timeline and the construction loan timeline; or else they can cost themselves a lot of money and headaches.

If you want to purchase the land as a part of the overall owner builder construction loan, then make sure you understand these hard learned lessons before you make an offer on the land.

Prior to making an offer on the land that they want, every owner builder should first take a moment to get pre-approved for the loan. This doesn't mean getting approved for a simple purchase loan or even getting approved for any typical construction loan. Instead, owner builders need to find specific owner builder financing, designed to allow you to build as your own general contractor.

Why is it so important for owner builders to do this prior to making an offer on the land? There are a few reasons, really.

First, and maybe most important, is that owner builders, like everyone else, will need to make an earnest money deposit when they submit an offer on the land. If you pay money into an earnest deposit for your land, prior to getting construction loan approval, you could end up discovering that your project or scenario doesn't qualify for an owner builder loan.

If you discover this too late, then you could end up losing your deposit. Protect yourself by getting approval beforehand.

Second, speak to a loan professional who specializes in owner builder construction prior to making an offer on the land in order to get a feel for the overall loan timeline.

In other words, you don't want to sign a purchase agreement for land that expires in 30 days. If you do this as an owner builder, you better already have your blueprints and budget completed. Otherwise, it will be impossible for you to finalize your blueprints, then put together an actual budget based on actual bids/ estimates from local sub-contractors, then get your loan through underwriting.

No owner builder has ever gone through that process all within 30 days - at least not successfully. If you only give yourself 30 days in the lot contract, then you end up rushing through the home plan design phase and the budgeting phase.

Therefore, owner builders can save themselves a lot of time and trouble by speaking to their owner builder construction loan officer prior to making an offer on their land. The loan officer should be able to explain all of the nuances of the loan timeline, as well as provide information about a typical owner builder planning process.

These are simple owner builder lessons, but you would be amazed at the number of people who make these very mistakes. For the owner builder who doesn't pay attention to a realistic timeline and rushes into making an offer on their dream piece of land, the project typically goes astray very early.

Owner builders who make an offer on the land before accounting for the time needed to finalize blueprints and compiling a true budget will often have to purchase the land outside of the construction loan. In other words, you would have to buy the land first. Then, get the owner builder loan. This means two closings. This means two sets of closing costs.

However, owner builders who get their pre-approval first, and speak to a loan officer before making an offer on the land, will be better prepared to start their planning process.

Indeed, these owner builders will have plenty of time in their lot contract to put their blueprints and budget together. Plus, you will already know up front what owner builder construction loan terms you qualify for. You won't have to worry about losing your earnest money deposit on the land, or about losing your land. Owner builder loan timelines aren't complicated, but you need to be aware of them before jumping blindly into your project.
About the Author
If you are considering being an owner builder and requesting financing for an owner builder construction loan, then visit www.OwnerBuilder101.com. Or, call (877) 876-3688. Chris Esposito specializes in owner builder loans and finances owner builders through his Owner Builder 101 program.
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