If you have always dreamed of building your own home, there are lending options that can make this possible!
Building your own home gives you the opportunity to create your perfect retreat, customized to your own tastes, and enables you to completely avoid the often tedious process of home shopping. It can also save you money, in some cases, however this depends on a lot of factors.
It is possible to get a mortgage to finance building your custom home, but the process is unique and requires more upfront capital than simply purchasing a ready-built home.
Mortgages for unbuilt homes are based on the future appraised value of the completed home. So, you need to have detailed plans and specifications, and an appraisal before approaching a lender to mortgage the home.
A mortgage for an unbuilt home is also known as a construction loan. You need a LOT more upfront capital to qualify for this kind of loan. In addition to your down payment, you need to pay up front at each stage of construction. Once each stage is complete, you are “paid back” by the loan, so that you can use that same capital to fund the next stage. Stages might include building the foundation, framing the house, installing utilities, etc.
Therefore, in order to qualify for this kind of loan, you will need to show that you have the capital to start the building project.
One advantage to taking out a construction loan is that it is fully open and can be repaid at any time if you have the means to do so. Also, interest is only charged on the amount that you actually use. Once construction is complete, your construction loan will be converted into a regular mortgage. Typically, lenders will give you a timeframe in which construction must be completed, otherwise penalties may apply.
If you are ready to begin this process, here are some additional tips to help you make the most of your custom built home:
- Choose a reputable builder: Make sure that you thoroughly research any potential builder. Check reviews from various sources. Fixing a poorly built house is expensive at best and impossible at worst.
- Make plans and stick to them: Changing plans during construction can be very expensive and difficult. Take the time to ensure your plans are what you really want, so that they don’t have to be revised later.
- Consider the future: Even though you are designing your home according to your taste, it’s important to consider what future buyers may want from the home in case you decide to sell in the future. Be cautious about any extreme design or layout choices.
- Save money by going green: Be sure to research green upgrades to incorporate into your house. Not only will this save you money on Utilities, you can also qualify for various grants designed to encourage green building and design.
- Plan for potential problems: Ensure that you have reserve funds available for any difficulties that may arise during construction.
Building your own home can be a very rewarding experience, but the intricacies of the loan process can seem intimidating. Your local mortgage broker can help you navigate this complicated process and decide if this option is right for you!
