What are owner builder construction loans?

Building your own home – whether by overseeing the project or heaving in for 'sweat equity' – can be rewarding, both financially and emotionally. You can get your dream home exactly the way you want it, and potentially save tens of thousands doing so. 

But unless you have buckets of liquid cash, you'll likely need a loan to finance your owner build – and that might be the first time things get tricky.

What is an owner builder loan?

An owner builder loan is a form of finance available to those who wish to build their dream home or investment and manage the project themselves. Thus, they don't want to sign a contract with a registered builder.

These loans work by essentially drip-feeding funds as the building process progresses. This can save a borrower money, as it means they're only paying interest on the funds they've used at a given time.

Owner builder loans are notoriously difficult to secure, however, with many lenders tightening their eligibility requirements in recent years. In fact, two of Australia's largest lenders, CommBank and NAB, explicitly do not fund owner builder construction projects.

Are owner builder loans different from construction loans?

Owner builder loans are, by definition, construction loans. Though, an owner builder might face greater hurdles in securing a construction loan than if they were to contract out the build process.

That's because owner builder projects are seen to be riskier and more susceptible to cost blow outs, delays, and other issues. After all, unless you're a tradie yourself, you mightn't be too familiar with the ins and outs of construction and project management – which entails everything from budgeting and scheduling trades to ordering materials and quality checking.

If you've ever watched an episode of Grand Designs, you'll know how much can go wrong!

Which banks and lenders offer owner builder loans?

Here are the stances of Australia's largest banks on owner builder loans:

Bank	Offers Owner Builder Loans?	Notes
CommBank	No
NAB	No
Westpac	Yes	Westpac requires owner builders engage an independent advisor to complete costings and inspect each stage of the project
ANZ	Yes	ANZ imposes a different approval policy and criteria for owner builders

However, the big four don’t represent the entire home loan market. Smaller banks can often offer more adaptable lending options than their large counterparts, while many non-bank lenders are known for their flexibility.

How much can you borrow through an owner builder loan?

When it comes to borrowing for an owner builder project, the amount you can access largely depends on two key factors: the value of your planned build and the size of your deposit.

Standard construction loans already require larger deposits than regular home loans, with loan-to-value ratios (LVRs) typically maxing out at 80% to 90%. But for owner builders, lenders tend to be even more cautious – meaning you might need to front 30% to 40% of the project cost yourself (LVRs of 70% or even 60%).

Why? Because building projects rarely go exactly to plan. Unexpected expenses can crop up, from material cost blowouts to delays in the build. If you've signed a fixed-price contract with a licensed builder, those risks are largely absorbed by them.

But as an owner builder, the responsibility – and financial burden – falls squarely on your shoulders. That's why lenders want to see that you have enough financial buffer to handle any surprises along the way.

How to apply for an owner builder loan

By now, you've probably gathered that securing an owner builder loan isn't as simple as ticking a few boxes and hitting 'submit'. Compared to a standard mortgage or even a regular construction loan, the process comes with extra hoops to jump through-and a fair bit more paperwork.

Lenders want to be absolutely sure you can manage the project and cover any unexpected costs, which means they'll ask for more than just your financial details. For example, if you're applying for an owner builder loan with Westpac, you'll need to provide:

• A detailed costing and planning form, signed off by a qualified professional

• Proof of Owner Builder Insurance

• Council-approved building plans (or private approvals, if applicable)

Other lenders may have their own unique requirements, so it's worth checking with your chosen bank or lender directly. If all this sounds overwhelming, a mortgage broker can help you navigate the process.

Considering taking out a construction loan? Check out these low rate options:

Important Information and Comparison Rate Warning

I'm a registered builder, can I take out a construction loan for my home build?

If you're a registered builder, you can likely take out a construction loan for your own home build. And, of course, you likely wouldn't need to sign a contract with yourself.

You should be ready for your lender to take a fine-tooth comb to your business, however. You'll probably need to prove you're a reputable business owner and are capable of managing your project.

Alternative financing options for owner builders

If securing an owner builder loan feels like an uphill battle, you're not alone. As we've covered, many major banks shy away from financing these projects due to the risks involved.

But that doesn't mean your dream home is out of reach – there are other ways to fund your build.

1. Home equity loans

If you already own a property and have sufficient equity, you might be able to borrow against that equity rather than applying for an owner builder loan. This can be a more straightforward option since lenders are generally more comfortable securing a loan against an existing asset rather than an incomplete construction project.

Pros:

✔️ Easier to secure than an owner builder loan
✔️ No need for staged loan drawdowns-get funds upfront
✔️ Can be used flexibly for construction costs, materials, or labour

Cons:

❌ Your existing property is on the line if you can't repay
❌ Might not provide enough funding for the entire project

2. Personal loans

For smaller-scale projects or those who don't need to borrow large amounts, a personal loan could be an option. While these loans typically come with higher interest rates and shorter repayment terms, they offer a quick and flexible way to access funds.

Pros:

✔️ No need for home equity or construction loan approval hurdles
✔️ Funds can be used immediately, without staged payments
✔️ Can be useful for covering unexpected costs mid-build

Cons:

❌ Higher interest rates compared to home loans
❌ Lower borrowing limits than mortgage options

3. Specialist or flexible banks or non-bank lenders

If the big banks won't budge, specialist lenders or non-bank financiers might be the solution. These lenders often take a more flexible approach to owner builder loans, assessing applications on a case-by-case basis rather than applying rigid lending criteria. They may consider your construction experience, financial stability, and project specifics rather than rejecting applications outright.

Pros:

✔️ More likely to approve loans for owner builders
✔️ Can offer tailored solutions based on the borrower's situation
✔️ May allow higher LVRs than banks

Cons:

❌ Interest rates might be higher than mainstream lenders

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