Pros and Cons of Owner-Builder Construction Loans

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Owner-builder construction loans can be difficult to find in a bad economy. The thought of building your own house can be very enticing. If you have any idea how to build, you can save a substantial amount of money on labor. While getting an owner-builder loan could help you out, it does come with some drawbacks as well. Here are the pros and cons of owner-builder construction loans.


  • Save money- Perhaps the biggest reason that you would want to get an owner-builder construction loan is to save money on the labor. Many estimates say that you can save up to 40% of the price of a regular house if you build it yourself. If you hire a builder to do it for you, they have a markup on everything and they can add up quickly.
  • Satisfaction- Building something yourself can give you a lot of satisfaction when you do it correctly. This is even more true when the thing you are building is your dream house. Building a house with your family can bring you together and give you something to call your own.
  • Lower payment- When you save money on the building of your home, you will secure a smaller mortgage. This will enable you to have a much smaller mortgage payment every month. Anytime you have a smaller payments, your quality of life is enhanced because you are given financial freedom.
  • Instant equity- When you build your own house, you will be able to create instant equity in your home. Going the traditional route will cause you to build equity very slowly by comparison. It might take you 15 years to build the amount of equity that you can build right up front by building your own house. If you ever need the money, you can refinance, sell the home or get a second mortgage.


  • Difficult to find- Finding owner-builder construction loans can be extremely difficult. Many lenders do not want to loan to anyone except a certified builder. Therefore, you may be hard-pressed to find a lender that will offer you with a loan.
  • Involve a builder- Even if you are planning building everything yourself, you might have to involve a builder just to supervise the project. They can help you get the money you need, but you will have to pay them something to get involved.
  • High fees- Dealing with an owner-builder construction loan may cause you to pay higher fees than normal. Banks charge you more for construction loans. If they are going to take a higher risk by giving you the loan, they will expect to be compensated on the front end.
  • Two closings- Some owner-builder construction loans will cause you to go through two closings. You will have to close before you break ground and then again once you have completed the home. Switching over to a traditional loan might cost you another set of closing costs on the second loan.