Home buyers who want to build a property for themselves or for investment purposes, can find it a challenge to compare flexible loans that will offer them the best deal as there are many variables. A loan for building a home is called a ‘self build mortgage,’ and there are several different types of self build mortgages available in the market place.
Differences between a Self Build Mortgage and a Traditional Mortgage
To compare flexible loans for a self build, the differences between a self build mortgage and a traditional mortgage first needs to be understood. The main difference is that self build mortgage money is released in stages as the building progresses, rather than as a single amount. The success of the loan application is not entirely dependent on financial circumstances, as with a traditional mortgage, but also on the quality and credibility of the presentation. Mortgage lenders will want to ensure the project is properly planned and produced by suitably qualified professionals. They will use the plans to assess the value of your plot of land and the end-value of your self build scheme. A thorough cost analysis needs to be made along with an itemized budget. They will also take into account your enthusiasm, experience, confidence in completing the building within the timescale laid out, and the reasons why you want to do a self build.
Currently there aren’t any self build loans for 100% of the entire project cost. They range from 50 -80% of the land value, and therefore you require some capital to begin with. There are 2 methods by which the money can be released during the build: at the end of each stage, known as arrears stage payment, or at the start of each stage, known as advance stage payments. The advance stage payment mortgage is more popular as it gives a positive cash flow during the building process.
Before you compare flexible loans, have a carefully drafted expense plan so you know exactly how much you need to borrow, and aim to acquire a flexible loan with the lowest percentage of interest, with payments over the shortest practical period.
Important Factors to Consider When you Compare Flexible Loans
There isn’t an easy way to compare flexible loans for a self build mortgage because there are so many factors to consider, and what may be suitable for one homebuyer may not be suitable for another homebuyer. However, the important factors to consider when you compare flexible loans for your self build mortgage are:
What is the maximum loan-to-value (LTV) available?
Who will assess the valuation of the land and property? How much will it cost?
Are the staged payments made in advance or in arrears of each stage?
Will you need planning permission in a detailed or a summarized format as a condition of an advance loan?
Are there charges for multiple inspections and valuation surveys before funds are released?
Is the lender flexible if you have to alter the design of your self-build home?
Do you need a warranty or another type of structural insurance? Most lenders also require site insurance to protect against damage caused to the building during construction and theft of materials.
Are there any early termination/completion/redemption fees?
Can you manage you own construction or does the lender stipulate you must have an architect or a project manager for the build?
What construction conditions are attached to the loan?
There are many variables with a self build mortgage and as there is no quick way to compare flexible loans for your needs, an independent mortgage broker can guide you to the right flexible loan for your needs.