Building your own home is a dream for many people, but it requires a considerable investment. If you don't have enough money, a self-build mortgage can be the ideal solution. finance the construction of your home from scratchUnlike a traditional mortgage, this type of loan allows you to receive the money in different phases as the project progresses.
In this article, we explain what a self-build mortgage is, how it works, what requirements you must meet, and which banks offer them. Read on and discover how to make your homeownership project a reality with the right financing.
What is a self-build mortgage?
A self-promoter mortgage It is a mortgage loan designed for those who want build your own home on land you own. Unlike a conventional mortgage, which finances the purchase of an existing home, this type of loan allows you to finance the construction of a new home from the ground up.
The operation of this mortgage is particular: the bank does not deliver the money in one go, but rather releases it at different stages of construction. Periodically, a technician or architect certifies the progress of the work, and new disbursements are made accordingly.
How does a self-build mortgage work?
This type of loan follows a different structure than a conventional mortgage. The process is generally divided into three main phases:
- Early stageThe bank provides a down payment on the loan to begin construction. This amount typically covers initial expenses, such as the architect's fees and the laying of the foundation.
- Certification phaseAs construction progresses, the bank requests technical reports certifying progress. Based on these documents, the financial institution authorizes new payments.
- Final phaseOnce the house is finished and certified as habitable, the bank releases the final loan disbursement.
During the time that the construction lasts, Entities usually grant a grace period, which means that only interest is paid without amortizing capital, thus facilitating payment management.
Requirements to apply for a self-builder mortgage
To access this type of financing, banks establish certain essential requirements that the applicant must meet:
- Owning urban land free of charges, registered in the Property Registry.
- Have previous savingsBanks typically finance up to 80% of the total cost of a home, so you'll need to contribute the remaining 20% with your own resources.
- Have a project approved by the College of Architects detailing all aspects of the future construction.
- Obtain the municipal building permit, issued by the town hall where the land is located.
- Have an execution budget prepared by an experienced construction company.
- Have financial solvencyBanks will analyze your job security, credit history, and debt level before approving the loan.
How much money can the bank finance?
The amount that banks grant for a self-build mortgage varies depending on the institution and the applicant's profile. In general, financing is usually up to 80% of the appraised value of the future home once completed.
In addition to the mortgage money, it is important to have a extra savings to cover other expenses such as the building permit, property appraisal, taxes, notary fees, and administrative costs. You can find out how to handle these aspects through various sources, such as this article on the Circular flow of income.
Terms and conditions of a self-build mortgage
The conditions for this type of financing vary by bank, but the most common are:
- Maximum repayment period: Between 25 and 30 years old.
- Grace period: Up to 2 or 3 years, in which only interest is paid and not capital.
- Type of interest: It can be fixed or variable, depending on the offer of each entity.
Tips for applying for a self-build mortgage
If you are determined to build your home with a self-build mortgage, keep these in mind tips To facilitate the process:
- Compare different bank offers to choose the loan with the best conditions.
- Make sure the build time does not exceed the grace period set in the mortgage.
- Request detailed quotes to different construction companies before starting the work.
- Prepare an additional fund to deal with unforeseen events or cost overruns during construction.
A self-build mortgage can be the best solution for building your dream home. However, it requires meticulous planning to meet the requirements and avoid delays or financial problems. Were you familiar with this type of mortgage?
