Building Your Own Home? Consider the Following Financing Options

Feb 13, 2014 by

Building your own home isn’t easy for a number of reasons, not least the fact that there’s a very good chance that you’re the first of your peers, and indeed the first member of your family, to go down the self-build route, meaning every step along the way is a sharp learning curve.

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This learning curve will potentially be steepest when it comes to understanding how you can finance your house build, as you’ll find that financing a self-build is a slightly different process to financing a simple house purchase, with different processes involved at each step along the way to ensure everything is in order.

When you take the time to look into your financing options you may become overwhelmed by all the information on the subject out there. To help simplify this matter for you, just remember there are three key ways of financing your self-build (all other methods are branches of these), namely:

  1. Borrowing money from family and friends: equally the easiest and hardest way of raising financing for your new home.
  2. Home loans: applying for a self-build loan from a bank or alternative loan provider.
  3. Self-build mortgages: similar to traditional mortgages, with their own individual quirks.

To decide which of these options are right for you, or indeed whether a combination of two or all three would work in your favour, they’ve been explained in more detail below:

1) Borrowing from Family and Friends

If you’ve ever had to borrow money from family or friends you’ll know that this is usually the last route you’re going to want to go down, yet it’s a route available to nearly all of us, so it deserves a mention here.

In the opposite scenario, if you’ve ever been asked to lend money to a family member or a friend you’ll know that the two most important things on your mind will be when you’ll get your money back, and whether or not getting it back will feel awkward (unlike lending money to a stranger, lending money to a family member or friend can strain an already good relationship).

There are several ways to do this right, though above all else it’s recommended that you encourage whoever is lending you the money to lay down the ground rules early on. This way you’ll feel more comfortable as you’ll know exactly how (and when) your family member or friends wants their money back, and they’ll feel more comfortable as they’ll know you’re taking their money seriously.

2) Home Loans

These loans are available whether you’re building your own home or financing the purchase of an already existing property. Though it’s been harder to get these loans of late, conditions have recently become much more stable, with more prodders making it possible for you to finance your self-build through a standard loan of this type.

If you decide to go down this route, do keep in mind that not all loan products are made equal. There’s a huge difference between highly competitive home loans and a standard loan given to somebody with poor credit, or indeed no proof of income. To get the best rate possible when financing your home build, do all you can to prove your worth to your provider.

3) Self-Build Mortgages

Though not nearly as common or regularly utilised as the previous two options, mortgages designed specifically for those building their own home, such as yourself, can be useful if you currently have a bad credit rating and need to rely on the most limited financing option you can get.

If this is the case, however, you may well be better off simply combining a loan alongside borrowing money from family and friends, as if you’re not offered a good self-build mortgage rate there’s probably little you can do to move your build forward anyway.

In conclusion, building your own home isn’t easy for a number of reasons, not least the fact that in most cases, every step along the way is a sharp learning curve, especially when it comes to understanding how you can finance your house build. The three methods of financing most open to you are borrowing from family and friends, home loans, and self-build mortgages.


About the Author:

A company aiming to set a benchmark in mortgage broking, Smartline is a leading home financing provider in Australia. They offer home loans to suit the needs of almost every buyer.

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