Understanding the Self Build Mortgage: Is It the Right Option for You?

In recent times the self build mortgage loan has become more widely utilized.  Over the course of the early part of the 21st century, the existing home market has been volatile and unpredictable.  Therefore, an ever growing number of men and women have taken to building their own homes.  As a result, these individuals require financing for their construction efforts which comes in the form of the self build mortgage.

There are both differences and similiarities between a traditional home mortgage loan and a self build mortgage loan.  Of course, with both types of financing, it is important for the borrower to meet certain financial and related requirements in order to qualify for the financing the first instance.  Generally speaking, the underwriting process for approval of a traditional mortgage loan versus a self build mortgage loan nearly are identical.

With a traditional mortgag loan, the proceeds from the loan are paid outin one lump sum.  The funds are paid to the seller of the home that is being purchased by the borrower.  With the self build mortgage, the loan proceeds are not paid out in one lump sum.  Rather, the proceeds from the self build loan are paid out in installments at different stages of the building process.  Specific milestones are established within the self build loan agreement itself which set forth when these payments will be made or tendered. 

In this regard, you need to make certain that you clearly understand whether these payments will be made at the beginning or at the end of a particular stage of construction as this will have a significant impact on your cash flow and so forth.

Although there is some variation between lenders as to how much you will be able to borrow via a self build mortgage loan, typically most lenders will permit you to borrow up to 75% of the cost of the land and up to about 60% of the costs associated with the construction of the residence itself.  Therefore, it is necessary for a person who does wish to build his or her own home to have what amounts to a fairly significant amount of cash at his or her ready to put into the project.

Another point that you will want to bear in mind when it comes to applying for a self build mortgage is the reality that in many instances the interest rate on this type of loan will be higher than what will be found on a traditional home mortgage loan.  Of course, you will need to pay attention to the associated costs and fees as well when you do make application for this type of financing.

Finally, and unfortunately, cost overruns on residential building projects are commonplace.  Therefore, if you do intend to obtain a self build mortgage you will also want to make sure that you have a contingency fund of your own in place to deal with any unplanned cost overruns that might end up occuring on your residential construction project.

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