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Raising the money to build your own home

Building your own home is a way to get a home which may meet all your needs and may cost less than buying one already built from a developer. Financing this type of work can be a major problem but some mortgage lenders are able to help.

Self-build mortgages

More risks are involved in building your own home but self-build mortgages can help with the financial complications of managing such a project. The main difference between a self-build mortgage and a house buying mortgage is that with a self-build mortgage, money is released in stages as the build progresses rather than as a single amount.

There are two types of mortgage which could be used:

  • the first option is a traditional arrears-based mortgage released in staged payments on completion of each stage
  • the second option is an advance payment scheme which releases funds in advance of each stage of construction and removes the need for bridging loans - the stages can be fixed or flexible but there are usually five and these depend on the type of building work

However, not many mortgage companies will offer an advanced payment, due to the risk involved. If you want to stay in your current home while the new one is built, you will need to find out what the lender's attitude will be to any outstanding mortgage on your existing property. You also need to ensure that you have enough income to cover both mortgages.

Over 30 banks and building societies offer mortgages to self-builders.

Working out your budget

You need to plan your budget carefully so that you know how much the project is going to cost in total. Your mortgage lender will ask for this and you need to make sure that you have covered all your costs such as land costs, professional fees, building work and materials.

  • make sure you know what you can take on yourself and employ an architect, surveyor, planning consultant and project manager if necessary
  • you are probably going to borrow a large sum which you have to pay back whatever happens to the building
  • you need to make sure that you hire a good builder in order to reduce the risk
  • getting the right insurance and warranty cover is also vital so that you can be protected against some of the risk if things go wrong
  • you will also need to cover your legal expenses
  • it is essential to include an amount for contingency to cover unexpected costs which might come up

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