Self Build Construction Financing Risks

“You May Be Surprised As To What The Biggest Risks To Self Build Construction Financing Actually Are”

Because most construction financing mortgage loans are from private lenders, the focus is more on property value versus annual earning and credit profiles.

So the largest risks associated with self build or home construction financing don’t really have anything to do with credit and repayment, but more about budgeting and project management.

That’s right, the budgeting and project management elements can pose a higher risk to the success of a construction project than just about anything else involved with a self build process.

And if you stop to think about it for a minute, the reasons are fairly obvious and logical.

First of all, lets define self build construction projects where the owner of the property is going to finance and coordinate the construction of a building structure on said property. In most cases, this is a residential home where the future home owner plays the role of borrower and general contractor. The property owner may also utilize a licensed builder, but the property is not owned by the builder.

In most cases, the self build will be the one and only such project ever undertaken by the property owner or owners in the case of husband and wife joint property ownership.

As a result, the individual or individuals have very little if any relevant experience for first making sure that all costs are accurately budgeted into the project and then being able to properly project manage the work to a successful completion, within the budget outlined.

In most cases, if there is a reasonable amount of project planning and some equity in the property, a construction loan will not likely be hard to procure. But once approved, there is certainly no guarantee that everything will progress according to plan and the ability to deal with cash flow and project management issues will be critical to not running out of money before completion and getting completed to the requirements of the long term take out mortgage.

Much of these risk can be taken away with a detailed budget that is fully supported by quotes and binding contracts between the self builder and the suppliers, contractor, trades, and sub trades. The budget needs to also allow for contingencies and stay away from unnecessary changes to the plan.

From a project management point of view, a detailed work plan arranged across a time line with costs associated for each element of work will go a long way to reducing the risks associated with this critical project component.

To better understand these and other project risk elements, please give me a call so we can make sure that whatever construction financing that gets arranged for your project is going to best suit the construction requirements.

Click Here To Speak With Construction Mortgage Broker Joe Walsh