Owner-builder loans: another housing option: pros and cons of building your own home are outlined by this housing lending expert.

• Author: Clary, Don

There are few accomplishments that stack up with building your dream home. From designing the home with all the amenities to watching the walls go up to walking into the completed home and seeing what you have accomplished, it's a process many Alaskans dream about, but relatively few undertake.

One way to help the process go as smoothly as possible is with an owner-builder loan.

An owner-builder loan can be used when you are building your own home, or contract to have your home built. You act both as the buyer and the project manager. You purchase the materials, arrange for labor and oversee construction of your home.

How Does it Work?

Owner-builder loans are actually two separate loans: a short term construction loan to pay for the materials and labor needed to build the home; and second, a long-term mortgage loan.

The first step is to pre-qualify for a long-term loan. This can be done in person or online.

After your long-term loan has been approved, it is time to meet with a construction loan officer. Your construction loan officer will be your contact at the bank during construction of your home. The loan officer will review your construction budget, blueprints, subcontractor and supplier list, construction time schedule, and other necessary paperwork.

After blueprints have been finalized, an appraisal will be ordered to determine what your home will be worth when it is completed. Following that appraisal, your construction loan officer can grant your construction loan.

One thing to note is that an owner-builder loan typically requires more liquid assets than a traditional mortgage. About 25 percent of the total cost of construction is required in cash and/ or land equity. You will need to show proof of sufficient assets to provide for a contingency fund for overruns.

"Our typical owner-builder loan customer is someone who owns a piece of land and is looking to build their dream home," said Sue Benedetti, vice president of First National Bank Alaska's Home Loan Center. "These are not necessarily people who have construction experience."

Benedetti said one thing that all successful owner-builders have is a commitment to get the home they want. Although the process is never easy, she said it is almost always rewarding.

"Buying a home is probably the biggest financial decision most people will ever make," she said. "When you decide to build it, too, that means that you are in charge of making sure that all the pieces of that investment come...