Are you thinking of building your own home but not sure what financial options are available to you? Then look no further!
In this article, we’re going to have a look at all the different finance options available when it comes to building your own home.
As building your own home is such as massive commitment and project, financial support will be needed to help with the project.
Finance Options For Building Your Own Home
There are a variety of options financially when it comes to building your own home, and some may be better than others.
Depending on your current situation, it will depend on what the best financial option for building a home. Below, are some of the available options available to you when building your own home:
Cash
Cash is an option when it comes building your own home; however, a lot of cash will be needed to do this.
Building your own home is a massive project, that costs a lot of money so this may not be the option for everyone.
It might be that you have saved money over the years or come into a big sum of money through inheritance.
The thing to make sure is that you have enough cash when using this option and plan to use more money as extra costs can up that you don’t expect.
Sell Your Current Home
It might be that case that you currently have a home and want to build a new one, from scratch.
If this is the case, then an option to get some money to fund building your own house can be selling your current home and living in temporary accommodation.
Depending on how long you have owned the current house and the location of it, will depend on the equity in the house. Over time, equity will build up in the house, making it worth more money than it was originally bought for.
This means that when you go to selling it, you might get a large amount of money from the sale that can be used for building your home.
It might be that this doesn’t cover all the costs, so other options like a self-build mortgage or loan can be used alongside this to help out.
Self-Build Mortgage
A self-build mortgage is different when compared to a normal mortgage that can be taken out to buy a property.
With a self-build mortgage, you first borrow money to buy the land for the house to be built on and then the money is released through the different stages of the build.
This is because there may not be an existing property that the lender can use as security, so instead, they release the money in stages.
There are two types of these, arrears stage payment mortgage and advance stage payment mortgage. An arrears stage payment is based on the value of the property, through the different stages.
A percentage of the value is released at the end of each stage, meaning that there will be upfront costs before getting this money.
An advance stage payment mortgage is cost-based and releases money in advance to each stage of the project, rather than after.
This is probably a better option because you will receive money, before each stage of the development so you won’t need to have the cash to fund some of it yourself.
Custom Build Mortgage
This is another type of mortgage used for building your property; however, this is more for if you’re working with a developer to build your house.
In this case, the developer would provide everything from the land, project management and building materials needed.
This type of financial option is more aimed at those that are paying a company or developer to build the house for them.
Property Development Finance
Property development finance is funding used to either build, convert or refurbishment a property.
This is aimed purely at those that are wanting to build or renovate a property, so a good option for those wanting to build a house.
It’s a short-term loan, where a large amount of money is borrowed for the property development project and then paid back afterwards.
As this is aimed at those building a property, it means a large sum of money is available quickly and to be paid back in a short amount of time.
If you have an existing home, then this can be used as security, as once the project is complete, the former home will be sold, so the money from that can be used to pay the loan back.
Property development finance is a great option for if you want a large amount of money for a property development project, that you can get quickly and payback within a short amount of time.
The important thing with this is to remember that you need some security to be able to get the loan, which might be selling a property to pay it back.
Find out more about development finance
Bridging Loans
Bridging loans are similar to property development finance but are a bit more flexible as to who can get one.
With a bridging loan for new builds, you may not get as much money when compared to property development finance. It’s still a short-term loan, where the money is borrowed and paid back within about a year.
This may be a better option for funding the little costs that you may not be prepared for, rather than using it towards the construction of the property.
What Is The Best Finance Option For Building Your Own Home?
Deciding what the best financial option is for building your own home, depends on the situation you’re in and which option applies best to you. Each financial option is different and has its own advantages and disadvantages. So, it’s important to have a look into each financial option and think about which applies best to you and your current situation.
The cash and selling your current home option may not be the easiest options to use when building your own home, and there are better financial options to choose than this.
The mortgages are good to consider when it comes to building your own home, but you may need to be prepared for extra costs that the mortgage doesn’t cover. In some cases, the money may not be available until after each stage of the property development project.
Finally, property development finance and bridging loans are similar; however, for building your own house, property development finance may be the better option.
This is based purely at those developing and building a property, meaning a large amount of money can be borrowed for the project.
One thing to make sure with these loans is that you have security, to be able to pay it back within the short time frame.
Each option is different, and some may be better for others and the situation they’re in so always make sure to have a look at the options, to decide which might be best for helping to fund, building your own home.
To find out if you can get funding for your self build contact Property finance Partners. Call 020 3393 9277 or email: [email protected]
