Home Buliding and Interior Design

Owner builders need to put a budget together prior to starting construction on their new home, not only to qualify for an owner builder construction loan, but also to properly plan for the construction phase.

All too often, though, owner builders use the latest and greatest cost estimator that claims to have eliminated the need for getting real bids from individual sub-contractors and material providers.

Just plug in some quick specs about your home, and you have an instantaneous construction budget to build your dream home.

Right? Wrong.

Here’s the problem – not one of those cost estimators is accurate for your specific project, especially for your owner builder project. All estimators, no matter how fancy or expensive, are based on average costs. Your house, no matter what, is not exactly average. Your house may be more detailed or less detailed than average. It is guaranteed not to be exactly average.

Cost estimators are almost entirely based on square footage and costs per square foot. Let’s say you, the owner builder, are building a 2000 square foot house. A cost estimator will spit out some number for you based on costs per square foot x 2000 feet. You can make some adjustments, typically, for higher or lower grade finishings, but that is it.

Is your 2000 square foot house a simple shoebox, or is it a Victorian style house? Your estimator software is likely not to care. A 2000 square foot Victorian could cost an owner builder over twice as much as a very simple design of the same size. Things like roof pitches, number and design of windows, porches, and many other variables are often not considered. So, using an estimator without getting proper bids, could force an owner builder to make gross budgeting errors.

And, it gets worse. Even if you think you are using a super detailed estimator designed just for owner builders, you will fall short if you fail to account for your local costs, which vary from town to town and even within different parts of the same town.

Also, owner builders constantly run into inaccuracies for any aspect of a home that is not completely standard. For example, if window sizes come in a standard size, and you need something an inch or two different, you will pay a huge premium that your estimating software will not account for. Do you want any curves to those windows? Any transoms or sidelights? These discrepancies are just for windows. Spread this across an entire house, and you should get the point.

Now add one more factor to the equation. The actual number of owner builders who use estimating software correctly is miniscule. Most people, especially owner builders, do not do this sort of thing professionally. And no matter how smart you think you are, you will most likely make mistakes. So, not only are most owner builders starting out with a faulty premise when using a cost estimator, they are using the application incorrectly on top of that.

Often owner builders want to use cost estimators that are provided by material package suppliers or home design companies for their particular set of blueprints. The owner builder’s argument is always logical – the blueprint company or the home kit supplier based the overall construction cost estimates on the specific set of blueprints. So, they should know the actual costs to build that particular house.

Well, sadly, they might only have a rough feel for the typical costs, based on some of the reasons listed above. And even if they do have a good idea, they may underestimate the costs just to get you to buy their package. Why would they do something like that? Put yourself in their shoes. They make more money by selling larger home designs or large material packages. So, by low-balling the estimated cost to complete the home, they can convince owner builders that the larger houses are affordable.

Therefore, owner builders opt to buy the larger houses, and more money goes into the company’s pockets. It happens all the time. When you confront a house plan provider or a home kit company, you will always get the same answer: the budget provided is just an estimate.

The only costs that the company can assure are accurate are the costs for the specific materials that the company is selling. The cost estimate to complete the house is meant solely as a helpful, rough guide for the customer.

The best advice for any owner builder is to disregard the cost estimate completely. If you want to know what it will cost for the labor and materials to build that particular house in that particular town, then go find out. Don’t rely on others to tell you what you want to hear.

In conclusion, do not rely solely on estimating software. They lead to trouble for owner builders every single day. And remember this last point: your cost estimator, and the person who designed it, has no liability when you run out of money during construction. But, you do.

So, when should an owner builder use cost estimating software? There actually is a good time to do so, and that is at the very early stages of thinking about your new home. If you just want to get a very rough idea of the costs of a house plan you like, by all means use a cost estimator to start your thought process. But, add 10-15% to be extra safe. Then, once you have decided to go forward with a home plan and a specific owner builder project, toss those estimates in the garbage and go about the process the right way.

With the ongoing struggles of the housing industry, the government finally decided to step in and rescue the flailing mortgage giants, Fannie Mae and Freddie Mac. So, how will this bailout affect your ability to get an owner builder construction loan?

Good owner builder loans are construction-to-permanent loans that let you wrap your permanent mortgage into the financing with the construction phase. Because Fannie Mae and Freddie Mac have become virtually the only source of funding for banks and other home lenders looking to make home loans, this means that the Fannie and Freddie bailout will create some good and bad changes for you, the owner builder.

The official government move was to create a conservatorship, which means that government assigned personnel are taking the place of Fannie and Freddie management. In other words, the government assigned managers are now in charge of these two mortgage industry titans, including the $5 trillion in home loans that they currently back.

As an owner builder, you may be wondering why all the fuss about Fannie and Freddie. How do they even work? Why do they affect so many home loans in the United States?

Here’s why: banks loan money to homebuyers. Then, these banks sell the mortgages to Fannie Mae or Freddie Mac. Banks then use the money they get from the sale of those mortgages to make new loans. Fannie and Freddie, meanwhile, bundle those loans, attach a payment guarantee to them, and resell them as bonds.

In fact, the government created Fannie and Freddie for the specific purpose of boosting and supporting the mortgage industry. The two mortgage companies are technically privately owned, though they are government sponsored enterprises (GSE) of the United States.

Both Fannie Mae and Freddie Mac have been struggling greatly in the last year due to the falling home prices and rising foreclosure rates. So, with the government conservatorship in place, what does it mean for owner builder construction loans? Let’s start with the good.

The good news for owner builder loans is that qualified borrowers will see better interest rates on their permanent mortgages. As mentioned above, good owner builder loans are designed to be construction-to-permanent loans, meaning the borrower only has one loan closing to cover the construction phase and conversion to the permanent mortgage when the house is done being built.

For owner builder construction financing, a borrower will convert over to the permanent mortgage rate when they are done building the home. With the government bailout of Fannie and Freddie, these highly qualified borrowers could see their 30-year-fixed rates drop substantially. The rate during construction probably won’t be affected as much, but the long term, permanent rate is the more important rate anyway.

So, that’s the good news. What about the bad news?

The bad news for owner builder loans is that the guidelines will probably get even stricter as Fannie and Freddie struggle to eliminate any mortgages that they would consider risky. Therefore, an owner builder may see tighter requirements for debt-to-income ratios or slightly larger down payments needed.

However, looking at the big picture, it is important to note that owner builder construction loans will still be available. Things could have been much worse. But, with the government bailout of Fannie and Freddie, the overall good news is that owner builder lending will continue.

Guidelines might be a little stricter, but strong borrowers will see better rates on their permanent mortgages. Weaker borrowers, with credit scores below 700, may find it helpful to spend time during their planning phase working on increasing their credit scores. It will help their chances at approval and definitely help their rates. If you find yourself in this category, speak with your owner builder loan officer about some credit repair options.

Owner builder residential construction projects offer a terrific point of comparison from which businesses can learn volumes about effective (or ineffective) project management strategies and techniques.

Owner builders are individuals who wish to save a lot of money by eliminating the costs of hiring a general contractor. Therefore, owner builders manage the construction of their own homes. They don’t necessarily have to do any of the labor themselves to be official owner builders. But, owner builders must oversee the planning and construction.

Because owner builders are often inexperienced in many aspects of residential construction, let alone project management, it is easy to take some invaluable lessons from owner builder construction and apply them to business project management.

Owner builders make many basic mistakes. Learn from them to refresh yourself on some project management basics.

1. Owner builders often underestimate the amount of time required for their construction project. What’s the lesson here? Always add an extra 15% to your project timeline to create a safety buffer.

Most owner builder construction loans provide a minimum of twelve months for owner builders to get their home built. Yet, most owner builders think they are going to be completed with construction within six to nine months.

Unfortunately, it is not uncommon for owner builders to blow their timeline and often use more than the typical twelve months allotted in the owner builder construction loan.

Of course, the timeline error is due to other management errors that occur during the construction project, but the lesson remains valid. Just like owner builders should overestimate the amount of time needed for a project, so should anyone professionally involved in the project management industry.

2. Owner builders constantly fail to underestimate the importance of the planning phase of a project. Similarly, anyone involved in project management should regularly remind themselves that the project planning is more often than not just as important as the actual execution of the project.

Owner builders typically fall into the trap of wanting to rush through their planning and budgeting in order to get to the physical construction of the home. Unfortunately for the owner builder, this means that they have no accurate budget numbers and no sub-contractors lined up to build their house.

It sounds basic and simple. It is basic and simple. For the owner builder who makes this mistake, he will lose precious time and money during the actual project as he scrambles to find any sub-contractor who will do the required work.

If the owner builder had taken the time during the planning phase, he would already have the sub-contractor lined up and under contract. There would be no scrambling. There would be no desperate hiring of under-qualified, over-priced sub-contractors at the last minute.

Think about how this owner builder example applies to any project. It doesn’t matter if it’s residential construction or any other project management field. The planning phase is as important as the execution phase. Your time is well spent during the planning. If you enter the execution phase properly prepared, you will save yourself time and money.

It’s true for owner builders. It’s true for you.

3. Owner builders often make the mistake of failing to thoroughly inspect the work of sub-contractors. In the project management industry, you live and die by your follow-up and inspection of the work that is being done.

One of the ways in which owner builders fail to properly inspect their sub-contractors’ work is that they don’t do a secondary follow up after some time has elapsed after the initial completion of labor.

For example, an owner builder may think he’s doing a good job of managing his construction project by inspecting the work of his plumber once the rough plumbing has been completed. If the plumbing checks out okay, the owner builder will often make the mistake of paying the plumber in full.

However, what happens once the HVAC mechanic goes to complete his portion of the work? What happens when he finds plumbing errors that the owner builder didn’t find? If the plumber is already paid in full, it is almost impossible for the owner builder to get the plumber back out on the job site.

Therefore, all owner builders would save themselves a lot of heartache if they did a secondary inspection after their initial inspection. Think of it as a double follow-up. By waiting an appropriate amount of time to perform the secondary inspection, you give yourself (and other people on the job) a chance to find any flaws that may have been initially missed.

Thus, before you mark a specific phase or evolution as complete, wait an appropriate amount of time. Perhaps you shouldn’t call a particular phase complete until the subsequent phase is satisfactorily in progress, showing no ill effects from the first phase.

Overall, the mistakes that owner builders make are very simple. Thus, the project management lessons are pretty basic. Yet, they’re vital. Owner builder construction is a great way to refresh yourself on the core basics of successful project management.

Owner builder construction loans, like the rest of the mortgage industry, have had to tighten their belts to survive in today’s lending climate. For borrowers who wish to build their own homes, this translates into tougher guidelines to secure financing. However, there are still four creative ways that an owner builder has available to close on a construction loan without a down payment.

If you want to be an owner builder, then that means that you want to cut out the costs of a general contractor and build a home that is valued well beyond the total cost of construction. Therefore, you may think that this sweat equity that you are going to build into your home should cover any requirement for a down payment.

Not too long ago, you would have been right. Owner builder construction loans were being closed everyday with borrowers putting no money into the deal. Looking back, it seems almost insane for a lender to provide financing with no cash requirements for people who want to build a home without a general contractor. Heck, even loans that do require licensed, approved builders nowadays require some cash from the borrower.

So, if you want to be an owner builder today, you should expect to have a down payment of at least 5%. When you consider the level of risk that a construction loan represents to a lender, this is still a phenomenal deal. But, if you are an owner builder who has no real savings available for financing, you may be able to secure a loan with no down payment out of your pocket by using one of these five methods.

The first way to close an owner builder construction loan without bringing a down payment to closing is to get an exception to waive the Interest Reserve feature of the loan. The Interest Reserve is a pot of money wrapped into your loan to allow you to go through construction without paying the mortgage payments out of your pocket. It’s there to protect you, the owner builder, from having to make multiple house payments during the construction phase. But, if you are a well-qualified borrower, you can request an exception to waive this pot of money and make payments as you build.

If you are granted this exception, your interest payments that you make as you build will take the place of the down payment on your owner builder loan. However, this exception is getting tougher and tougher to get as the mortgage industry continues to tighten guidelines. You may be able to waive only a portion of the Interest Reserve and have to bring a portion of the typical down payment. That’s not bad, but let’s look at some other options available to you.

The second method is probably the most common way that an owner builder can avoid bringing a down payment to closing on the construction loan. If you own your house, you can cross-collateralize the equity from your current home to waive any down payment requirement. At some point while you build your new home, you will sell your current home prior to moving into the new house. An owner builder can use a portion of the profits from the sale of the old home to put into the new loan and move into the newly built house.

But, if you don’t own your home, then you may still be able to get an owner builder construction loan without a down payment by owning the land that you want to build on. If you have owned the land for less than a year, then you will get credit for the cash that you already put into it. Or, if you owned the land for over a year, then you get full credit for the actual value of the land. Imagine you bought the land for $30,000 a year ago. Today it might be worth $40,000. Even if you still owe $30,000 to pay it off, you will get credit for a $10,000 down payment as an owner builder!

If none of these three methods will work for you, then you might be able to secure financing using this fourth way: counting any of your pre-paid costs toward your down payment. For example, if you are an owner builder who has been planning your project for a while, then you may have already purchased blueprints and plan engineering. Or, you may have already installed a septic system on your land. Or, you may have made a deposit to a material package provider. Whatever the expense, if you can document it, then you can apply it toward your owner builder construction loan and avoid a down payment at closing.

And, finally, here’s the fifth, and maybe most creative, method. If you want to be an owner builder, you may be able to work out a deal with the seller of the land. If the seller will agree to hold back a portion of the purchase price, then you can close on the loan without a down payment. The seller will have to wait until you finish building your home until he gets paid that amount that he agreed to hold back.

Why would a seller do this? It’s simple, really. It’s a buyer’s market right now, and sellers are often desperate to sell their property. It may be a great deal for them to get the bulk of the sales price at closing, then get the remainder once the home is built. And, you can proceed with your owner builder construction loan without bringing any cash for a down payment to closing.

The mortgage industry has had to dramatically alter the lenient guidelines of yesteryear. However, if you want to be an owner builder, there are still some great ways to limit or eliminate potential down payment requirements.

After owner builders work their way through the maze of owner builder construction loan qualifying, it will be time to close on the loan. This is essentially where you sit down and sign a huge stack of documents that you will never read, or understand if you try.

Basically, this is where the owner builder loan promises to give you the money, and you promise to repay it. Sounds simple, but it will take a hundred or so pages to accomplish it.

Owner builders are typically free to choose any closing agent to conduct the closing. In most states, owner builders can choose either an attorney or a title company to perform this function. Some states require you to use an attorney.

Once you sign all the documents, the closing agent still must record them with the county registrar, making the owner builder construction loan official. This is usually the day after your signing.

During construction, as an owner builder requests specific loan draws, the lender will most likely request the closing agent to do periodic updates of the title to make sure no liens have been filed to date.

Most good owner builder construction loans are one-time-close, construction to permanent loans. Once you are finished building, there are no more closings to convert to your permanent mortgage. At this point most lenders simply send you a final loan agreement with the final loan amount and interest rate and terms for your signature. There should be no need to go back to the closing agent again for a second round of document signing if the owner builder loan is set up properly.

Owner builder loan closing costs typically consist of three components: broker/lender fees, loan fees, and third party fees. Remember two things about closing costs when considering owner builder financing.

First, closing costs for construction loans, in general, and owner builder construction loans, especially, are going to be slightly higher than costs for a plain purchase or refinance mortgage. Accept this and shop for the loan that best fits your needs. Do not waste your time looking for an owner builder construction loan that has the same terms as the refinance loan you did two years ago. Do not try to compare apples to pineapples.

Second, just because an owner builder construction loan has slightly higher costs does not mean that it is not a great deal. Remember the big picture. You are considering being your own contractor to build the exact home of your dreams and save tens of thousands of dollars doing so.

If your research shows that you can save, for example, $65,000 by being an owner builder, is it no longer a great deal if you only save $63,000? How about $58,000? $53,000? Realize that you are still saving a ton of money while building your dream home, despite the slightly higher financing fees that come with owner builder loans.

Brokers earn their income on owner builder loans by charging origination fees for their service. This is a percentage, called “points,” of the loan amount. One point equals one percent of the loan amount. By charging an origination fee, the broker is able to give you access to a lender’s wholesale rates. The broker is also able to represent you and your best interests by offering access to a variety of loan programs.

Working directly with a lender is also occasionally an option. Direct lenders are typically compensated the same way as a broker; by charging points.

Perhaps the best option is working with an organization that has expertise in owner builder loans, that is a direct lender, and that also has the option of acting as a broker when needed. This will give you the best of both worlds while ensuring you are working with a specialist.

The number of points you should expect to pay will vary by loan program and lender. For very specialized loans such as owner builder construction loans, it is common to pay approximately two to three points in total fees. This is a small price to pay for access to a program that will allow you to save tens of thousands of dollars while building the home of your dreams.

In addition to broker or lender fees, your loan’s closing costs will include loan fees. These fees include items such as underwriting, document preparation, draw administration, loan processing and a variety of the other small fees. For a construction to permanent loan (remember you are getting two closings in one), expect to pay approximately a half to one percent of your loan amount in total for these fees. Most of these fees are fixed amounts, so the percentage will be higher for lower loan amounts.

The third component of your owner builder closing costs are made up of things the lender or broker has no control over, hence the name “third party” fees. Third party fees are also, for the most part, not affected by the type of loan you choose. They are, however, influenced by the size of the loan. Third party fees consist of your closing agent’s fees, title search and title insurance fees, recording fees to the state, county or locality and any state or local taxes. Most of these items are set by the state and local governments and are simply the price of buying or owning a home in that area.

All told, owner builders can reasonably expect to pay approximately two and a half to four percent of their construction loan amount in closing costs. Some states may have high transfer taxes, excessive title insurance fees or other high state or local fees that will increase your costs.

Overall, the total closing costs are not bad when you consider you are closing on two loans in one and being given a loan to undertake a process most lenders consider extremely risky. Plus, owner builders get to build their dream home while saving tens of thousands of dollars.

If you want to build your home with a general contractor or as an owner builder, you are almost certainly going to need financing in the form of a construction loan or an owner builder construction loan. So, before you ever commit to that dream plot of land, you better first understand the zoning implications – not just for your county’s building permits but also for your owner builder loan terms.

Almost everyone who is considering being an owner builder or hiring a GC to build their home for them already knows that the zoning on the land is vital to your ability to get building permits issued. For example, if you want to build your single family residence on a piece of land that is zoned only for commercial buildings, then your county almost certainly isn’t going to issue permits.

But, what if the county did allow you to build your own home as an owner builder on a piece of land that is zoned for commercial buildings? Can you do it? Yes, you can, as long as you don’t need to get an owner builder construction loan. In other words, as long as you have the cash to buy the land and build the house out of your funds, then you’ll be okay. But, if you need any sort of a loan, especially an owner builder loan, then you’ll never get it approved.

Therefore, it’s important for every owner builder to realize that the lot’s zoning is vital not just to the issuance of county building permits but also to the approval of a construction loan. So, let’s take a quick look at what is ideal, what is acceptable, and what just won’t work.

It would be ideal for an owner builder construction lender if the borrower is building his single family residence on a piece of land that is zoned for residential single family residences (typically annotated as R-1 by the county – though every county is different). This seems pretty obvious, but it is worth pointing out that a property can also be zones for residential properties ranging from single family residences to multi-family residences. Will this be a problem for an owner builder construction loan?

You should have no problem with financing on a piece of land that is zoned for multi-family residences, as long as it is also zoned for single family residences. However, you will want to make sure as the owner builder that there are going to be other single family residences in the area. If you are the only single family home in the area, surrounded by duplexes and multi-family units, then you will have a tough time with your loan’s appraisal.

What if the land is zoned commercial? Well, as mentioned above, your owner builder loan will never get approved if the land is zoned commercial instead of residential. This is true for any construction loan, not just owner builders. But, sometimes the land will be zoned to allow for both commercial and residential. Will this be okay?

Yes, you can get an owner builder construction loan approved in this case, as long as you can get a decent appraisal done. For example, imagine a piece of land that is zoned for either commercial or residential construction. There is a good chance that it is surrounded by commercial buildings instead of residential buildings. Your appraiser is not going to be able to find 3 or more comparable residential properties that have sold within the last 12 months in your immediate neighborhood/ area. Therefore, the owner builder lender is not going to be able to approve the appraisal, which spells disaster for your financing options.

But, this is not a very typical scenario. Something that is more common is a problem that often arises in rural areas. Often, land is zoned for agricultural purposes instead of residential construction, which will cause problems for any owner builder financing. Let’s take a look at an approvable scenario versus a scenario that will be denied.

Financing will be possible for owner builder construction on agricultural land only if you can meet a couple of important criteria. First, you have to show that your property will not be used for anything agricultural in nature. An owner builder must be building his home and only his home. This means no livestock and no farms. If you want these features, then you technically no longer want an owner builder construction loan. At this point, you should be looking for an agricultural construction loan.

Second, you will have to show that it is common in your county for other families to build single family residences on agriculturally zoned land. These other properties cannot have any agricultural uses. For example, in some rural areas, it’s common for the county to simply zone every property as agricultural. In these cases, it’s pretty typical for properties to be used strictly as residential properties without any agricultural use. Therefore, an owner builder construction loan would be possible.

However, if your county has a mix of residential and agricultural zonings, then you will run into trouble trying to finance a residential construction project on a piece of land that has been specifically zoned for agricultural use. You would need to switch the zoning to residential if you wanted an owner builder loan in this case.

Owner builder construction loans are designed for residential construction only. Therefore, before you commit to buying your dream piece of land, you should take a moment to understand the property’s zoning and its implications for owner builder financing.

Many families who fix up their homes save money by doing some of the labor themselves. In many cases, it would be a waste to hire a general contractor for simple home improvements that you can do yourself. Therefore, people often get this DIY version of home improvement confused with full scale owner builder construction. Knowing the difference will make finding the right financing much easier.

Really, the difference between a home improvement project and a full owner builder construction or rehab project is simply a matter of scale. However, this difference in scale will translate to major differences in the loans available.

If you have the desire and skill to fix up your home as an owner builder, you probably already realize that you can save a lot of money by eliminating the costs of a general contractor and possibly even doing some or all of the labor yourself. But, even with these costs savings, many people will still need to look for a loan to get it done.

If your home improvement project is a smaller scale project, meaning it wouldn’t fit the category of a major rehab, then you will be wasting time searching for an owner builder loan. Even though your home improvement could technically be labeled as an owner builder project, the financing for owner builder construction/ rehab is going to be tailored specifically for major tear downs, large additions, and full rehab projects.

An owner builder rehab or construction loan would typically work well for someone who is starting with a home that is not currently a livable residence. For example, you may have an old, run-down home that needs to be torn down to the foundation and re-built. In this case, if you wanted to do the work without a general contractor, you would fit well within the project guidelines for an owner builder construction loan.

Or, perhaps you have found a home that doesn’t need a full tear down but does need major rehab work. In this case, ask yourself if the extent of the needed repairs is closer to the scale of full construction than it is to the scale of smaller home improvements. If the rehab is so extensive that it feels like a full construction project, then you would probably be okay looking for owner builder financing.

So, why is owner builder financing typically set aside for larger projects only? It doesn’t seem fair until you look at it from the bank’s point of view. Owner builder projects represent the riskiest form of residential lending. Construction loans in general are already considered a high risk mortgage, because a bank is lending money without an existing home. Now, add to that risk level the fact that an owner builder loan has no requirement for a licensed general contractor. You can see easily why these mortgage products are considered risky until the home is completed.

Because of this higher risk level, an owner builder loan will have more fees and requirements. These extra costs and stipulations make these loans extremely advantageous for a borrower who is going to be building a full house without a general contractor. The cost savings of eliminating a GC far outweigh the financing costs of an owner builder construction loan. However, when the project is smaller, such as typical home improvement projects, the necessary fees and structure of an owner builder loan will begin to outweigh the overall savings to the borrower.

Therefore, if you want to be your own contractor and do the labor yourself for a home improvement project, then you will need to find financing that is tailored specifically for home improvements instead of the larger scale owner builder financing. The trick is that most home improvement loans will still require a licensed general contractor.

A couple of years ago, an owner builder who was looking for a smaller home improvement project could easily finance it with a home equity loan without having to worry about getting a home improvement loan. There was plenty of equity to go around, and the financing was cheap and easy. Nowadays, though, home equity loans are much tougher to come by. So, borrowers are forced to look for home improvement loans that are specifically designed to lend money based on the future value of the home once it’s fixed up.

This is getting tougher and tougher to find. And, if you want to do your home improvement in the style of an owner builder project (eliminating the GC to save money on labor and management costs), then you will be hard pressed to find a home improvement loan that will fit your needs. Therefore, borrowers today are turning to alternative sources of finance, such as credit cards and personal loans. With interest rates as low as they are, this may make sense. Just make sure that you fully understand the financing costs and the risks involved with the home improvement project. But, once you understand the difference between a home improvement project and a full owner builder rehab, you can at least focus your search for financing and start your project off on the right foot.

Owner builder construction is growing in popularity at a tremendous pace around the country as more and more people look to save money by building their own home. If you are considering being an owner builder to build your next house, then you need to know these 8 benefits of modular construction before you begin.

1. Highly engineered.

Whether you want to be an owner builder or hire a licensed general contractor, modular construction will be a good option to ensure the home is well engineered. In the past, there was a stigma about modular construction, because the earliest versions of the homes were poorly built.

But, the modular industry has come a long way. An owner builder can rest assured that a modular home will be engineered properly. Nowadays, unlike twenty years ago, there is a big difference between modular homes and manufactured homes.

2. Generally lower cost per square foot.

If you want to be an owner builder, you will save money in most cases by building a modular home versus hiring a general contractor to build the house for you. In fact, modular construction is somewhat comparable in cost to owner builder construction on site. In general, you will pay a little more, though, for the convenience of having the modular home built for you in the factory. However, if you compare owner builder modular construction to hiring a GC to build your home on site, then you should almost always see savings by going the modular route.

3. Built in a factory environment, eliminating timber warp and resulting in improved fit.

Because a modular home is not built on site, the lumber is not left outdoors to endure the weather. Therefore, the materials are not subject to timber warp, and your framing will fit together more precisely. Once the modular home is erected on the foundation on site, it will be weather tight, and the owner builder can then take his time to do the few remaining items required to complete the home.

4. Efficient building process and material usage saves on costs and material waste.

Any owner builder who goes through the typical on site construction process will tell you that there is always a lot of waste. It can’t be avoided, as you have to estimate the amount of lumber and other materials needed to build your home. This waste translates directly to money out of your pocket. A modular home, however, is built in the factory to pre-known specs, so there is much less waste.

5. Speed of construction cuts down the time frame tremendously, yielding interest savings on your construction loan.

As an owner builder goes through construction, interest accrues against the money that he has borrowed. Every month that goes by means more money that the owner builder owes in interest. Modular construction will drastically reduce the time needed to build the home, and you will therefore have less interest payment costs.

6. Less to manage.

This seems simple and obvious, but it’s vitally important, especially with owner builder construction. If you have never built your own home before, you will quickly realize that managing the myriad of sub-contractors can become a real burden. But, if you build a modular home, you will have much less work to oversee. Depending on the specific modular package that you purchase, you may have only one or two things to do to finish the home.

7. Built to meet or exceed local standards.

Modular homes nowadays are going to be engineered specifically to meet your local building code requirements. It takes a lot of the design and management off the shoulders of the owner builder. This means no more sweating over county code inspections.

8. Makes owner builder construction possible for some people who otherwise would need to hire a GC.

Because the process is simple for the customer, modular construction lends it self perfectly to owner builder construction. You can very easily build your own home without having to hire a general contractor. This will mean large savings in time and money for the construction of your home. There are many examples where the owner builder would not have been able to manage the project without a GC unless they went with a modular home.

Owner builder construction can save you 15% to 35% during the construction of your own home by cutting the costs of hiring a general contractor. However, if you don’t take the planning and construction seriously, then you could end up losing a lot of money and your dream home. Therefore, you need to have these four attributes to be a successful owner builder.

1. An owner builder will need to have strong project management skills. Owner builder construction loans are designed to allow you to act as your own general contractor. That means that you are going to hire your own sub-contractors and oversee their work. Therefore, an owner builder must be able to successfully manage the hiring of multiple sub-contractors as well as manage their labor during construction.

Owner builder construction is simply a long project. And, if you have sound project management skills, then you should be able to manage the construction of your new home. For example, you will need to make sure your sub-contractors show up to work on time, stay through a full day’s worth of work, and actually perform quality work during construction.

Because an owner builder is the general contractor for the construction loan, it will be your job to keep all of the sub-contractors informed about the timeline of the project. For instance, if your foundation is taking longer than anticipated, you will need to let your framing crew know immediately so you can schedule when they need to be on site to start the framing. If an owner builder doesn’t keep the labor strictly scheduled, he will lose precious time and money during construction.

2. A successful owner builder will be good at planning. Most people unfortunately make the mistake of assuming that the most important aspect of owner builder construction is during the actual construction phase. But a smart owner builder knows that the battle is won or lost during the planning phase.

In fact, owner builder construction loans are designed to help you with this part of the process. During the loan and planning stages, an owner builder will take the time to find the right piece of land to go with the right home plans. Then, a budget needs to be compiled based on written bids and quotes from local sub-contractors who have reviewed the blueprints.

If an owner builder fails to take these steps seriously, they will fail during construction. In other words, if you rush through the planning stages, you will have trouble getting your building permits and will lose a lot of time and money in labor and materials during the actual construction.

3. A good owner builder understands the value of follow-up and inspections. If you don’t take the time to inspect the materials that are delivered on site or inspect the labor that your sub-contractors have completed, then your home will be riddled with problems by the time you move in.

This is not to say that an owner builder has to be able to personally inspect the sub-contractors’ labor to ensure it meets specific building codes. That would require years of experience in the building industry, which is not a requirement to be a good owner builder. Instead, you need to take the time to be on site with local county building inspectors.

As each phase of construction is completed, make sure that the county inspectors are doing a thorough inspection to ensure the labor and materials in your home exceed the minimum building code requirements. In fact, you should not pay any of your sub-contractors for their labor until their work has been thoroughly inspected and deemed satisfactory. An owner builder who pays their sub-contractors for labor before satisfactory work is completed will have a very hard time getting those sub-contractors back on site to make any necessary corrections.

4. Owner builder construction requires strong negotiation skills. If you want to save as much money as possible while building your own home, then you will need to be willing to negotiate for lower labor and material costs.

In today’s housing market, an owner builder truly has a great advantage when it comes to negotiating with sub-contractors. A few years ago, sub-contractors were in high demand as everyone was building as many homes as possible. With the current housing market slow down, the construction has also slowed down.

This means that there are a lot of hungry sub-contractors looking for work. This means that a savvy owner builder can negotiate for lower labor and material costs to save as much money as possible. Don’t be shy about it. Remember, the sub-contractors will be working for you – not the other way around.

So, if you want to be a successful owner builder, you will stand a much better chance if you know and fully understand the importance of these four attributes. Notice that not one of these attributes mentions anything about having to be able to swing a hammer or hang drywall. Instead, owner builder construction is won or lost at the planning and management level.