A self-build loan is a mortgage taken out on a property where the borrower intends to carry out substantial works to the property themselves, rather than buying a property that’s already built or in the process of being built by a developer. If you are planning on undertaking a self-build project, you will need to be aware of the different types of finance available to you and how they work.
In this article, we will talk more about how to get a construction loan to self-build. In case you are planning to do the construction of your own home, you may be wondering how to finance your project. A self-build loan, also known as a self-build mortgage, can help you raise the money you need to make your dream home a reality.
A self-build loan is a type of mortgage that can be used to finance the construction of your own home. Self-build loans are typically interest-only loans, which means you only have to pay back the interest on the loan each month. The full loan amount is repaid when you sell the property or at the end of the loan term.
Self-build loans work in much the same way as regular mortgages, but with some key differences. Most lenders will release funds in stages rather than as a lump sum. This allows them to keep tabs on your progress and makes sure that the money is being spent as intended.
What is a Self-Build Loan or Self-Build Mortgage?
A self-build loan or construction loan is a mortgage that is specifically for people who are planning to build their own homes. Self-build loans work in the same way as a regular mortgage, but the process is slightly different and there are a few things to bear in mind.
The first thing to do is to find a suitable plot of land on which to build your dream home. Once you have found somewhere that you like, you will need to get a construction perm from the local authority. This can be a lengthy process, so it is important to factor this in when you are planning your build.
When you have secured planning permission, you can start looking for a self-build loan. There are a few different types of self-build loans available, so it is important to compare them and find one that best suits your needs. You will also need to provide detailed plans and specifications for your proposed build when you apply for finance.
Who Can Qualify for Self-Build Mortgage?
If you are planning to build your own home, you may be wondering if you can qualify for a self-build bridging loan. The good news is that most lenders will consider applications from self-builders, as long as you meet their usual criteria.
To qualify for a self-build mortgage, you will need to:
- Be over 18 years old
- Be a USA resident
- Have a good credit history
- Have a deposit of at least 10% of the total cost of your project
- Be able to prove that you can afford the repayments
In case you are unsure whether you meet all of the above criteria for bridging loans for self-build, it’s always best to speak to a mortgage advisor before starting your application.
Different Types of Self-Build Mortgages
In case you are planning to build your own home, you will need to research the different types of self-build mortgages available to finance your project. Self-build mortgages are specialized loans that are typically offered by smaller lenders and have unique requirements.
Here are some of the different types of self-build mortgages available:
- Arrears stage payment. Most commonly funding will be released in stages after the construction of each section is completed.
- Advanced stage payment. Sometimes it’s possible to get a self-build mortgage where the lender releases the money before you pay each bill.
Whatever the type of self-build loan you might choose, just remember to always get a construction perm before starting your building.
Self-Build Mortgages: Pros and Cons
There are a number of things to consider when taking out a self-build mortgage, and it’s important to weigh up the pros and cons before making a decision.
- Can be a cheaper option
- Possibility to build your dream house
- You can avoid stamp duty
- Risk of losing the financing
- Can be time consuming
When it comes to self-build loans, they can be a great way to get your dream house and make all the decisions yourself. On top of that, in most cases, this is a much cheaper option for many people.
This is because you will know exactly how much money you will need and you can calculate to keep it more affordable. All in all, this can be a great thing.
There are a number of potential drawbacks to taking out a self-build loan, which borrowers should be aware of before they make a decision. One of the main disadvantages is that self-build projects can often take longer to complete than traditional home-building methods. This can mean that borrowers end up paying more in interest over the life of the loan.
Additionally, self-build loans can be more difficult to qualify for than standard home loans, as lenders typically require extensive experience in construction or a detailed business plan. Make sure that you fully understand what this brings.
How to Get a Self-Build Mortgage
Construction loans and mortgages for a self-build house can be great to get the needed funding for the project. So, here is how to get one once you choose a lender:
- Give a detailed copy of your construction
- Planning permission
- The total cost of building
- Building regulation approval
Once you give all of that to your lender, you will have to wait until you get approved.
How Much Can I Borrow with a Self-Build Loan?
When it comes to self-build loans, the amount you can borrow will depend on a number of factors including the value of the land, the estimated build costs, your income and employment status, and your credit history.
If you own the land outright or have a large deposit saved up, you may be able to borrow more than if you are still paying off a mortgage on the property or don’t have much saved.
Your income and employment status will also be taken into account when assessing how much you can borrow. And finally, your credit history will be looked at to see if you have any missed payments or defaults on previous loans since this could impact how much you can borrow.
Alternatives to Self-Build Loans
There are a few alternatives to self-build loans that you could consider if you are looking to finance your self-build project.
- Personal loan
- Unsecured personal loan
- Home equity line of credit
- Remortgage your property
When it comes to the self-build mortgage, it can give you the needed funding to build your dream house. In this article, we gave you a better insight into how this type of loan works and what you can expect.
Just make sure to do the needed diligence and research before getting one.