If you are considering building your own property, before you even lay the first brick you should apply for a mortgage to help you build the property. Getting the mortgage should be the very first thing you do, because if you can’t get the funds to build your property then you will not be able to create your dream home. Lenders are often a bit more sceptical when it comes to lending to people whose property is not yet built, this is because they cannot see what they are lending on, just the plans. If things go wrong and they need to repossess your property and it is only part built then they may have trouble selling it on, so they would have actually lost money.
How to get a Mortgage on a New-Build
The good news is that it should be slightly easier to get a mortgage for a new-build house or flat or one that is being built by developers. It is becoming increasingly popular for first-time buyers to purchase their home before it has even been built. There are a huge amount of new-build properties on the market and they often get snapped up by eager buyers before they have even been completed. In this case the developer will have already valued the property for you and you will buy it for a set asking price, so the mortgage lender will be more confident that this is what the property is worth. There have been some problems with this type of property being overvalued, but in most instances, lenders will not mind lending to you even though the house or flat is still in construction.
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How to get the Funds
The first thing you will need to get the money is planning permission to build your home, you will also need to have a somewhat detailed plan of the property so that it can be valued. It is possible to get the money before you start the self-build, but this will generally be quite hard. Most lenders will like you to have started work on the property before they give you all of the money so they will instead release it in stages so they can check the development of it. There are accelerator self build mortgages and advance short-term finances, these allow you to get the money at the start of each different stage of the build and there is no need for the property to be valued at these different stages. So the lender knows it is going to get its money back it will ask you to pay a valuation guarantee which means if the property gets reposed they will be covered for any shortfall, which is what you will have to pay.
You will typically be able to borrow around 3.5% your income, depending on your financial situation and what other commitments you have. A lender will be slightly more cautious when it comes to properties that have not been built but that shouldn’t stop you from applying for a mortgage and hopefully having your dream home built.
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