Building your own home all by yourself is a quite interesting subject. You may be an expert in construction field or may be an average guy who is building his new home for the first time. Whoever you are, you’ll have to determine the perfect layout, determine the numbers and design of rooms handpick all the materials and even add an outdoor playhouse and many other things which are required for your house. May be in this reason, 27% of the new homes are made of custom build design, as per the statistics provided by National Association of Home Builders (NAHB) Research Center.
Constructing your home by applying your own imagination is quite exciting. But it is quite different when it comes to finance such a major undertaking of yours. It is obvious that majority of home buyers doesn’t always have enough funds to support the construction expenses of their home. So, generally people will require loan for their construction purpose. But it is not an easy task to gather loans for DIY construction in recent days.
So, if you are willing to construct your own home all by yourself, and require sufficient fund for the purpose, you must consider the following facts while search for the loan.
1. Don’t go for a conventional mortgage
You are going to buy a new existing home; a conventional mortgage will be suitable for you. You will get an easy loan if you provide sufficient documents and a fair credit report. But on the other hand, it’s quite impossible to arrange conventional mortgage loans when you’re building a new home. It is quite natural as you are not providing any collateral towards your loan. You’re expecting that the lender will approve thousands of dollars on a property which has no existence. Basically, construction is a risky investment, and the lenders won’t take such a huge risk.
2. Choose a construction loan
If you are planning to build your own house, you may need a special categorized loan. More specifically a construction loan. It is a kind of short-term loan (generally for 1 year) which is used to match up the total cost of constructing your home.
Construction loans have variable rates, normally higher than any conventional loans. You can use this loan initially for starting the construction. Once building is finished; you can refinance the construction loan into a conventional home mortgage. Another option would be taking a new loan with considering your newly build home as collateral and pay off the previous construction loan.
3. Need heavy homework
As you are pulling your socks for applying a construction loans, you must also do some heavy homework before going for it. You must provide numerous documents and data to prove your project is genuine, profitable and relatively low-risk for the lender. For a loan application, the project timetable and budget quote will be required. Also comprehensive list of construction details, floor plans, raw materials, insulation and many other details you’ll have to provide while opting for the loan. It is seen that professional builders maintain a “blue book” which has all information related to the home-building project.
4. Good amount as a down payment
As investing in a construction loan is a high risk venture, most of the lender will require 20% to 25% down payment from your end. It is quite natural as the construction process bears high-risk until the construction is finished.
5. Valued land
If you don’t own the land, the cost of the land will also be counted within the construction loan. If possible try to pay off the land value upfront or else you may have to bear a higher down payment while taking the loan.
6. Choose a reputed Builder
To get an easy approval of a construction loan, you’ll require hiring a reputed home-builder. Licensed general contractor or builder will guarantee a neat and clean construction with less chance of risks. If you hire a general contractor, there is big chance of not getting approval of your loan.
7. Shop online
Search in local credit union or banks for a construction loan. Local banks are much comfortable while approving home construction loans for the individuals who reside in their corresponding area. You may also try online construction communities for referrals.
Building your own home is not an easy job; compared to renting. But finding the suitable source of financing is more difficult than it seems. You must choose the best option according to your needs by considering above given factors.