Self-Build Mortgages  Financing

Self Build Mortgages

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A complex financing structure is one of the key issues that must be dealt with, when it comes to self-build projects and a obtaining self build mortgage. Traditional financing is not necessarily an option, with mortgage companies only being prepared to offer a mortgage on the property that actually exists - not that will exist in a few months' time! For this reason, the level of financing available from a traditional mortgage provider would probably only cover the value of the land, not the building costs.

Traditional Mortgage and Loans
One option is to create a self build mortgage through using a combination of a traditional mortgage and loans. This involves obtaining a mortgage on the value of the plot of land and financing the build part of the project through separate loans. This approach has several advantages, the main one being that there is no need to conform to the stages that must be completed for a self-build mortgage. By paying for the build through an independent loan, it is possible to build according to your own schedule, without being obliged to comply with the requirements of a self-build mortgage.

On the downside, the cost of a loan is likely to be considerably higher than the cost of a mortgage. Consequently, the monthly payments will be significantly greater and budgets should be adjusted accordingly.

Another issue is that an unsecured loan is typically offered on the basis of income. As an investor, this may prove problematic, particularly if the property is your sole business. The higher the level of risk that you pose to the lender, the higher your repayments and the less favourable this option becomes. Generally speaking, an investor with a reliable income from employment will have the option of obtaining a loan that offers flexibility, without blowing the budget.

Self Build Equity Release Mortgage
A variation on the above is the option of using equity release to produce the necessary cash to fund the actual build. The combination of a mortgage on the land and cash, either from savings or from equity release, often offers the best of both worlds in that you will have the flexibility of using cash for the development whilst using mortgage finance to purchase the actual plot.

Self-Build Mortgage
Despite the availability of other options, the vast majority of people choosing to self-build tend to utilise one of the many specialist mortgages that are now available, purely to deal with the unique situation of self-build. These types of mortgages are highly specialised and are dealt with in their own section.

Summary
Bullet Point When considering a self-build, it is possible to use a mortgage to obtain the plot and loans to build the property;
Bullet Point similarly, it is possible to use equity release from another property to finance the building work; but
Bullet Point the most popular way to finance a self-build is to utilise one of the many self-build mortgages that are now available on the open market.

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