What LVR will lenders give an owner builder?

On a licensed build the lender knows the cost, has a builder legally obliged to finish for that price, and has warranty insurance if the builder fails. On an owner build the cost is an estimate, the program depends on you, and if you run out of money or time the lender is left with a half-built house that is expensive to complete. Lending 70 per cent instead of 80 or 90 gives the lender a buffer to fund completion through a builder if it comes to that.

The lender takes your land value from a valuation, adds your construction costings as verified by their assessor or a quantity surveyor, and compares the total to the on-completion valuation. The loan is capped at the lender's percentage of the lower figure. If your costings are $450,000 and the land is worth $400,000, total cost is $850,000; if the finished home values at $900,000, the lender uses $850,000 and lends 70 per cent, which is $595,000. Any existing land loan is refinanced within that figure.

A licensed trade background, particularly as a builder, carpenter or project manager, moves you toward 80 per cent at some lenders. Professional costings from a quantity surveyor rather than your own spreadsheet. A significant contingency, 15 to 20 per cent, built into the budget. Fixed quotes from subcontractors for the major trades rather than allowances. Lower existing debt on the land. And a lender that specialises in owner builders rather than one that merely tolerates them.

The gap between the loan and total cost, which on a 70 per cent loan is 30 per cent of cost, usually covered mostly by land equity. Plus costs the lender excludes: some will not fund your own labour, council fees, or items not in the costings. And the contingency, which lenders expect you to hold in cash or inside the loan, not both.