In most cases, the customer already has the property secured as it can be difficult to try and arrange both property acquisition and construction financing into one financing facility due to the amount of time it takes to get everything completed.
That being said, bank or institutional construction loans for owner builders typically require the property to be free and clear of encumbrances so that a first mortgage position can be secured against the real estate, so a single mortgage to acquire the property and then construction the new building is not going to likely work anyway if you are considering working with a bank or institutional lender.
The real key to owner builder construction financing is making sure that you are focusing in on the lender source so that the needs of your project can be properly met.
In many cases, owner builder loans are provided by private mortgage lenders even though the cost of financing is going to be higher than a bank.
This is primarily due to the speed in getting a construction loan in place through a private lender and the predictability of the draw advance schedule which is going to be critical to making your cash flow work through out the project.
Yes, private money will cost more, but this is also a short term cost that will only last during the time of construction and typically will not have a material impact on your overall budget.
Lower cost owner builder construction mortgages will take longer to get into place, and you’re well advised to access to a cash or credit reserve if the draw advances are delayed or reduced for any reason during construction.
There can certainly be cost advantages to bank or institutional loans for owner build or self build construction, provided that you approach this type of financing in the proper manner and clearly understand how to manage it for best results during the entire time the funding is required.
The best way to determine which type and specific source of owner builder construction financing is best for the project you’re planning, or perhaps one that you are in the middle of, is to work directly with an experienced construction mortgage broker who not only has broad access to different types of construction financing sources, but also has the track record of placing and administering construction loans and mortgages for other owner builders.