Building your own house from the ground up can be very rewarding since you get the right opportunity to ensure it is everything you ever wanted in a dream home. When you consider the value and satisfaction you get from a self-build home, it may be a better option if you are willing to go down that road.
The truth is you have to plan how the project will be financed since you don’t want to get stuck in the middle. Most people buying homes don’t have all the necessary funds by the time they start the prospect and they turn to long-term credit to help in actualizing the dream. Unless you’ve already saved up enough money to cater for the construction, getting a self-build mortgage can be a good idea. Here, we’ll talk about some useful tips to help you with a mortgage financed self-build home.
Talk to an expert before you get started
Most self-build mortgages are primarily offered by lenders who target a niche that isn’t as popular as ready-made homes. As such, you might need to ensure that the prospective creditor is still interested in doing business with people who prefer to build their own homes.
Basically, you can get all the details by visiting a building society in your locality since every case is unique. If they agree to lend you the funds, the total deposit required, terms, and interest rates will be determined by planning permissions in the area and the building stage. Here, you will have to furnish the creditor with housing plans as well as planning permissions to aid in valuation.
The financier will be keen on rent obligations as well as active mortgages when making a decision about how much money you can take for the building project. However, the criteria for calculating affordability may vary from one financier to another.
Prepare a realistic budget for the project
Almost every lender is interested in knowing the total cost of your project. Depending on the building society you are working with, it’s possible to borrow about 75% of the land value to finance the purchase. When the time to start building comes, they will allow you to take 75% of the house value.
But if you are the current owner of the building land you have an advantage because it’s easy to increase the construction borrowing by using the land as collateral. At times, it may be necessary to use some savings to kick off the project so that your funds are not held up.
It’s always wise to ask for quotations from multiple construction firms and decide who is offering the best value for money. Depending on the total value of the building, the creditor may request that you provide a higher down payment. Normally, it’s around 20% of the total cost but it can go up to 25%.
Credit scores are important
Basically, building mortgage poses a higher risk to providers than a normal mortgage loan. As such, an excellent credit score are important if you want to get speedy approval. In case you have some ugly spots on your credit history, you may be engaging in an uncertain game here.
As such, ensure you have checked your current credit status to make sure everything is alright. If there are some blemishes, take some time to fix the issues as you accomplish other tasks like saving for a down payment before submitting your application. However, double check the reports to ensure they are accurate since the system can flag you down due to some errors that can be fixed quickly.
Most building societies take a wholesome approach when approving applications
Of course, credit profile plays a chief role in the approval process but it’s just one aspect among several others. Creditors are keen on the down payment you are willing to offer as well as the current value of your land.
On the other hand, the projected cost of building up to completion will be inspected. Lastly, the building contractor won’t go scot-free either. In most cases, the building society will conduct a thorough background check on the builder and the focus will be on credit profiles and track record in previous projects.
As such, always take enough time to find a contractor with sufficient job experience and a great track record. This will shield you from nasty surprises later.
Familiarize with the funding schedule
For this type of housing project, most finance providers on the market today release the money in several stages. The phases start from foundation laying to finishing the house and it’s common for providers to conduct a thorough inspection before injecting the next funds.
While this protocol provides a safety valve for creditors who are prone to losing money consecutively, it also makes this form of borrowing to be expensive. This is caused by the costs involved in the multiple inspections as well as additional administrative costs.
After the completion of each building stage, a valuation officer will come on site to sign off and initiate the next cycle of funding. However, some providers will only authorize the release of funds once you’ve finished the foundation and it’s completely watertight. As such, you need to have enough funds to complete the milestone.
Conclusion
When dealing with a self-build mortgage, you must be willing to plan ahead if you want to achieve the goal. In addition, it’s prudent to understand the necessary steps to help you push the project to completion. While you may need to make adjustments to your lifestyle to see it through, the joy of seeing your dream house completed supersedes all the sacrifices.
Author: Eric Brown
