I frequently have potential borrowers state that they want to participate in the construction of their new home to save money. Unfortunately this is another layer of risk for construction lenders in an already risky loan. No lender I know of will allow the borrower to do this on a low down payment 1x close loan. Typically a borrower will need to have a full builder contract, a contract that does not contain any reference to the borrower being responsible for any part of the construction.
There are a small group of lenders that will do construction loans for owner/builders but the requirements are high. The borrower will need to have at least a 20% down payment or equity into the project, a credit score in the 700’s and a reasonable debt to income level. They will need to present a complete line item budget for the project when applying. They should also have several thousand dollars in cash reserves as “float” money, cash for labor and materials prior to getting a draw for the completed work. Borrowers will typically have to pay 3-5 points plus standard closing costs to get these loans.
These owner/builders will then have to refinance these loans once the project is complete. They will need to order a new appraisal and completely requalify for the end loan. This is known as a two-time close process.
New home builders should take some time to consider just how much they will by being their own contractor, and the time it will take out of their lives, before wandering down this road.