Building your own home can be an exciting and rewarding experience. However, when financing your new home build, it’s crucial to understand that a traditional mortgage may not be suitable. Instead, you will need to consider either a construction mortgage or a self-build mortgage. These mortgage types are designed specifically for people building a new home or undertaking a significant renovation.
Construction Mortgages
A construction mortgage is a type of loan that provides financing for new home construction. This type of mortgage typically works in stages, with the lender releasing funds to the builder or contractor as each stage of construction is complete. This allows the borrower to pay interest only on the amount being disbursed rather than on the total mortgage amount.
One benefit of a construction mortgage is that it allows the borrower to have more control over the construction process. By releasing the funds in stages, the borrower can ensure their satisfaction with the completed construction before moving forward. Additionally, the lender faces less risk by only disbursing funds for completed work, leading to more favourable loan terms.
Self-Build Mortgages
On the other hand, a self-build mortgage is intended for people who are building their own homes. This type of financing is similar to a construction mortgage in that the funds are released as the construction progresses. However, the borrower is responsible for overseeing the project, and ensuring the work conforms to the local building codes.
A self-build mortgage is ideal for borrowers who want complete control over the construction process. However, the borrower must be actively involved and is required to oversee the project and ensure proper execution.
Financing Your New Home Build
Both types of mortgages are typically more complex than a standard mortgage, and the application process is more involved. Therefore, it’s beneficial to find a mortgage broker experienced in construction and self-build mortgages who can guide you through the process.
When choosing the right mortgage for your new home build, it’s important to consider your unique needs and circumstances. Make sure to consider factors such as your budget, project scope, and you’re level of involvement in the construction process.
In conclusion, if you’re planning on building a house, understand that a standard mortgage may not be suitable. Instead, you will need to consider either a construction mortgage or a self-build mortgage. These types of mortgages are designed specifically for people building a new home or undertaking a significant renovation and can help ensure that your new home build is a success.
