Replace Contractor Fees Using Owner Builder Construction Loans

Construction loans basically are loans where the money is used to finance or pay off any construction project. A construction loan can save you a lot of money, since this kind of arrangement removes the contractor’s fees from the mix. In turn, the amount or the total construction fee can be reduced significantly.

How it Works

Generally, construction loans work under the assumption that you already hired a contractor for the construction. Once you have chosen your general contractor, they should handle all the paperwork, including building permits. Your general contractor must also obtain materials, as well as hire all the necessary personnel to complete the construction project.

These are all important because all construction loans take into consideration the total expense needed for the project. The construction costs considered include the fees of the contractor, as well as the estimated amount for all the materials and salary of the personnel.

Based on this information, the lender may consider providing a construction loan for the entire project, or just financing a portion of the project.

However, there is another kind of construction loan called the owner-builder construction loan. In this kind of loan, you are considered to be the general contractor, instead of an outside party. In this regard, all the responsibilities of a general contractor will be done by you. This means writing up the budget, purchasing all the required materials for the construction, hiring subcontractors as well as applying and obtaining all the required permits and documents needed for the construction.

This kind of construction loan can be quite difficult to pull off, because most lenders are hesitant to approve these loans. Since not all owners are skilled or have the skills that a professional contractor has, there may be unexpected delays and expenses, which can affect their ability to pay the loan.

What You Need

If you plan on applying for an owner-builder construction loan, it is best to prepare. There are several things you do need to apply for this kind of construction loan.

The most important thing is the estimated budget for the entire project. You need to calculate the cost of materials, the salary of all your subcontractors and any other charges, such as filing of documents and building permits.

You also need to present an estimate of when the construction will be completed. Generally, lenders expect between 5 to 7 months for the entire project to be completed.

The Advantages of Owner-Builder Construction Loans

There are, however, several advantages of applying for an owner-builder construction loan. By applying for an owner-builder construction loan, you can save up to thousands of dollars on the entire expense of the construction cost, since you eliminate the contractor’s fee which is generally 20% of the entire project.

Also, you have more control of what is being built, the materials used for the project, the schedule and the subcontractors to hire. You can choose to seek assistance from friends or family members, that have the skill in certain areas, such as electrical wiring or painting.

With owner-builder construction loans, you also have the opportunity to oversee the entire project, and be able to check and control the expense of the construction.