Jan 27, 2017
For many, buying a completed property is the stress free approach to property investing. Have you considered the advantages of building your own house? Some of the advantages include flexibility with customisation, lower repair costs and higher energy efficiency. Building your own property, however, still requires financing. This piece takes a look at your options.
Paying for a partly built property within a development
“If you intend to purchase property from within a development, the financing options are similar to getting funding for a buying an existing house” say the guys at Home Builder Perth. “In many cases, the developing company will offer financing packages to their clients. If you choose to go with this option, you need to confirm that it is competitive. In some cases, you will be given the loan when you agree to terms but loan terms only kick in after development is complete. Working out the small details is important with this funding option”.
Paying for your custom built home
You have more financing options to choose from when you want to build your property from scratch. The first step is to apply for a construction loan. This loan type is not readily available in comparison to standard home loans so you may need to shop around extensively for rates.
With some lenders, you can get a special interest only loan as the house is being built that can then be converted to a mortgage as soon as construction is finished. With other lenders, you can take out an interest-only loan for the construction which can then be refinanced into a regular mortgage when you have completed the property.
Construction loans are deemed high risk. Therefore, you need strong credit for the loans to be approved in addition to up to 25% down payment. The actual down payment that will be required is determined by the cost of land and planned construction. Therefore, if you own the land, you can easily convert it into equity for your construction loan.
The credit and credentials of your chosen builders will also influence the approval or decline of your loan application.
Additional funding options for your new construction
Do you have equity in your current home? Your lender can offer a bridge loan to use while your new home is being built and you are waiting for the current one to be sold. Although this is a risky and expensive approach to take, it is a great way to get through the financing hurdle.
A second approach is to sell your current home, rent a smaller temporary home and wait for your new home to be completed. This frees up equity for your new home but you have to be willing to move twice.
With these financing options, you can think twice on getting that home loan for that existing property that could require renovation investments.