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What is an Owner-Builder Spec Construction Loan?
An owner-builder is a property owner who serves as his own general contractor for a real estate investment project. An owner-builder spec construction loan differs from a typical spec construction loan because when the property owner serves as the contractor he introduces an extra element of risk to the project.
What are the benefits of acting as the owner-builder for a project?
Owner-builders take a special interest in their projects because they’re building their own homes. By acting as a contractor, an owner-builder in California can save up to 40% of the price of their house. These savings give them more equity in the finished project. The owner-builder can make sure that jobs are done correctly and that the finished project matches his initial vision. After construction, the cost savings and increased equity often result in a lower mortgage payment.
Do I have to be a licensed building contractor to qualify for an owner-builder spec construction loan?
In California, you do not have to be a licensed building contractor to qualify for an owner-builder construction loan. However, you must build the house with a valid building permit and comply with all general building codes. Since you’re serving as the general contractor for the project, you should research permits and building codes before you apply for the loan.
What should I do before I apply for an owner-builder spec construction loan?
You should consult with a construction professional to learn how a project works from beginning to end. You must create a business plan. Include a projected budget that lists labor, cost of materials, building permits and any additional costs associated with the project.
If you need help preparing the plan, SFR Ventures, Inc. has a team of lenders, investors and contractors with years of construction experience who can help you. These experts can help you figure out how much the project will cost and how long it will take to complete.
As you begin to build, you must ensure that all of your subcontractors are reputable and guarantee their work. You should request to see previous projects and ask for references. You may also want to see if any complaints have been filed through local building authorities. As building progresses, have regular meetings with the subcontractors to be sure the project is kept on schedule.
If you’re acting as an owner-builder but decide that you are not comfortable managing the construction project, hire a general contractor. Most private money lenders will only lend hard money funds to owner builders or are hiring out all the trades to licensed professionals. So, while you can hang drywall, paint, and lay floors, make sure to have licensed plumbers, electricians, HVAC installers, etc. on the job site. Remember, a well-built home is ultimately less expensive than a home where the builder cut corners.
Why is it so hard to get an owner-builder spec construction loan from a California bank?
Many banks see owner-builder loans as risky investments. Since the foreclosure crisis, they’ve tightened up their lending rules in the San Francisco Bay Area and throughout California. Amy Bell of Investopedia explains, “It can be tough to qualify for these types of loans; but it is possible if you provide a well-researched construction plan that demonstrates your home-building knowledge and abilities.”
Why are private money lenders willing to provide owner-builder spec construction loans?
Private money lenders don’t face the same lending restrictions that banks do. Banks are responsible to their depositors. They have to make low-risk investments and follow hard and fast rules. Private money lenders invest their own money in a project. They can judge building projects on a case-by case basis.
How can I qualify for an owner-builder spec construction loan in the San Francisco Bay Area?
The requirements for owner-builder spec construction loans are similar to those for private money construction loans. These loans have no prepayment penalty, and can have a loan to value ratio of up to 65%. SFR Ventures, Inc. will consider cross collateral, has an easy application process with no upfront fees and offers terms up to 24 months. The owner-builder should not break ground until the construction loan has closed escrow. However, SFR can make exceptions to this on a case by case basis.
Can I get an owner-builder spec construction loan if I already have a mortgage on the property?
If you already have a mortgage on the property, SFR Ventures may ask that the existing financing be subordinated to the new loan. This means that the existing lender will become a second mortgage on the property. There may be exceptions to this requirement, which will be determined after a review of the loan request.
If you are looking for a spec construction loan in California please visit http://reiloanpro.com or call Beau Eckstein direct at 925.852.8261.