As published in Scotsman Guide's Residential Edition, December 2005.
Once a niche in the mortgage-lending business, owner-builder construction lending is now becoming a more mainstream marketing opportunity for mortgage professionals. In such do-it-yourself situations, borrowers neither have a general contractor's license nor a plan to hire a general contractor for their construction projects. In this growing national trend, they act as their own general contractors.
No doubt, this move in society has been influenced by the increase in do-it-yourself home-improvement television programs, as well as by homebuyers' desire to save money. Owner-builders realize they can save as much as 30 percent of the cost of a new home by not hiring a general contractor. Plus, they can maintain greater control of their construction projects.
Traditionally, these borrowers have had difficulty finding construction funds. Most lenders shy away from owner-builder construction financing because of the risks in-volved. However, you may now be able to fill a construction-financing need for these borrowers rather than turning them away to fend for themselves.
The 'do-it-yourselfers' and their projects
The people who choose to be their own general contractors vary. Some tend to work in the home-building business themselves in some capacity (doing drywall, electrical, masonry, roofing, etc.). They can handle this work themselves on their own projects. Others may be just starting out in the residential-construction business but do not have the necessary track record to get construction financing or credit lines from more-traditional lenders and banks. Still others are small-scale investors, home-improvement specialists or real estate professionals who feel that they are qualified and are willing to take on general contracting responsibilities.
Many of these individuals have the necessary oversight and industry experience to complete a residential-construction project but lack the required state general-contractor licenses. Further, they have no interest in obtaining such licenses. Some jurisdictions allow individuals to build their own homes for their own occupancy or for investment purposes without requiring them to hire a general contractor. State and local statutes and codes often only require that a licensed general contractor be hired when a home is built under contract for another party.
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