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May 10, 2018

How You Can Finance Construction on Your Home

Buying your own home is seen as the aim for many people in life. It is often regarded as the sign that you have grown up and taken the responsibilities of life seriously.

Of course, it also gives some security for the future and provides a host of other benefits.

Unfortunately the problem is that house prices continue to rise; this is making it very difficult if not impossible for many young people to get onto the property ladder. As a result people are becoming more inventive in their approach to the construction of a home.

Here are several suggestions as to how you can finance your own construction project:

The Conventional Approach

The usual way of financing a home is to approach your bank and ask for a construction loan. This is similar in nature to a mortgage but is released in part before the property is constructed.

This approach does require you to have a good record with the bank and pass all the standard tests.
But, you will also find that while the interest rates are generally very attractive you need a 20% deposit to get the ball rolling. In effect the mortgage funds will be released to you in stages; after you have completed the stage.

Without having some capital to get you started you are unlikely to be able to adopt this approach.

The Corporate Way

An alternative is to take a look at corporate finance offerings. These are firms that specialize in providing you with the finance you need.

They will search the markets to locate the best possible deal for your building project but they will expect you to be either a licensed builder or working with one. This can make it difficult to complete the construction process yourself; if that is your plan.

However, this approach is generally easier to secure funds than through the conventional method; it is a viable option for those struggling to generate the finance they need to build their dream.

Build Small

Another alternative is to look at the tiny house movement and see if one of these could be the right solution for your living needs. These can be built for very little money; you would be able to borrow this as a conventional loan or even from a family member.

Dedicated Loan

There are firms that will offer a loan specifically for the construction of your home. However the risks are generally higher on this type of loan and this is reflected in the interest rate.

You will also need to have a contract with a builder and a complete set of plans; along with the relevant insurances. Without these the loan firm will not even entertain your request.

The issue with construction is that firms are lending against a property that doesn’t exist; the funds you borrow may not turn out to be enough if unexpected issues arise. This can cause you to disband the project leaving everyone in a pickle!

This is why it is essential to do all the necessary research before you approach a loan company and start your build. The more funds you can put into the project yourself the better your level of control will be over the finished building.

Picture Source: Pixabay

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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