Guide to Planning, Financing and Building Your Home

Guide to Planning, Financing and Building Your Home

Choosing to self build a new home means you can get exactly what you want in a property for less than it would cost to buy it. This complete guide to self-building explores everything you need to know. If self-build sounds like something out of reach for you, think again. Building your own house isn’t limited to vast mega-mansions — there are self-build homes for every budget and for people who aren’t interested in rolling up their sleeves and necessarily building their homes with their own hands. 

While self-build may not be as popular as it is in the likes of continental Europe right now, that could all be about to change. New schemes, designed to make building your own home easier, are growing year by year, with the likes of Help to Build and Self Build Wales, alongside custom build schemes such as Graven Hill. There are also many more providers of self-build mortgages than before, while a recent review by MP Richard Bacon has advised the government of ways to increase the number of homes self-built. 

The benefits are numerous, from getting a space tailored to your exacting needs to the chance to make a profit on your build if you ever come to sell. Self-build is worth considering in your quest for the perfect home. 

Of course, self-build is likely to be far more challenging than simply buying a new home, but if you get to grips with the process with this helpful, complete guide, you’ll be armed with all the information to both anticipate these challenges and succeed with your project.

10 Must Know Planning Considerations

A house or any structure plan is also the designer’s prescription based on the client’s requirements. A conceptual plan is a visual presentation of conceptual ideas supported by mathematical calculations to give convenience and comfort to the users or occupants. A good plan is judged based on its functionality and economy, adhering to “Form Follow Functions” principles.

Distribution

Refers to the placement, location and arrangement of each room in relation to each other, like between kitchen and dining, which primarily requires accessibility on food servicing. These areas are interrelated and should not be far from each other.

Circulation

As roads and highways, traffic is also present inside the building that must be considered in planning. However, circulation and movements of the occupants inside the building should not be hampered by any obstacles nor be detoured due to poor planning.

Light and ventilation

There is no substitute for good daylight and fresh, natural air entering and circulating inside the building. Unfortunately, artificial lighting and ventilation are very costly.

Sizes, areas and shapes

Therefore, all designs are intended for human use and should be planned according to the human scale. Good design always provide ample areas to accommodate furniture, appliances, and other related facilities, including the most critical lanes or pathways for routinary movements inside the house. The shape as to plan and elevations should be strictly functional, not fancy.

Orientation

Refers to the sunrise and sunset position and direction, including the prevailing wind directions in the area. A brief nap or rest at midday or in the afternoon is normally done in the bedroom. Thus, a bedroom should not be oriented facing the afternoon sun. The kitchen, laundry and bathroom is better-oriented west, for sunlight kills many types of bacteria.

Zoning Laws

The soning ordinance should be consulted first before deciding on the final site of the house or building. For example, you might be constructing your residential house in an industrial or commercial zone.

Height

A moderate-high ceiling allows fresh air circulations, a comfortable atmosphere, and the room’s aesthetic value room. The room with a low ceiling has a warm atmosphere that requires artificial ventilation.

Electrical layout

The location of the convenience outlet should be planned simultaneously with the appliances to be placed on. The extension wire for appliances is the most unsightly obstacle in the room due to the improper location of the convenience outlet. A satisfactory electrical layout and installation are when you avail of its services without the need of an extension cord. The location and accessibility of light switches is another thing of important consideration. It should be installed near the door of every room for convenience in switching-in and switching-off when entering and leaving the room, respectively.

Location of doors

When a door becomes an obstacle creating inconveniences to the occupant, that is the time we realize the mistake of not analyzing its proper position from an early stage of planning.

Superstition

Although superstition has no page in the book of contemporary architecture, if your client believes and insists that his life success depends on o luck brought about by his superstitious belief, then the planner has no choice but to do what his client says.

Getting A Mortgage When Building Your Own Home

Whether you’re an adventurous person, a DIY expert or simply a fussy home buyer, the thought of building your own home might be a thrilling prospect. After all, you get to call all the shots when you choose to build your abode. That means you can determine the precise layout, dictate the exact number and type of rooms, handpick all the finishes and even add an indoor pool, an aquarium wall or a stairway slide, for that matter. 

While building a one-of-a-kind home from the ground up may sound exciting, financing such a major undertaking is an entirely different story. Obviously, most homebuyers don’t have enough money tucked away to cover the construction costs of their custom home – which means they’re going to need a loan. Unfortunately, landing a loan for a self-build project is easier said than done.

A Standard Mortgage Loan Won’t Do the Trick.

For buyers purchasing an existing home, it’s relatively easy to get approved for a conventional mortgage, as long as they have good credit and reliable income. On the other hand, it’s virtually impossible to score traditional financing when you’re building your own home. Why? Think of it this way: you’re asking the lender to shell out money for something that doesn’t exist yet. To make matters worse, construction is a risky process, and lenders don’t like risk.

Seek out a Construction Loan

If you plan to self-build, you’ll need to pursue more specialized financing avenues. Enter the construction loan. Sometimes called a self-build loan or construction mortgage, a construction loan is typically a short-term loan (usually the one-year maximum) used to cover the cost of building your home.1

These loans generally have variable rates that are higher than traditional mortgage loan rates. Once construction on your house is completed, you can either refinance the construction loan into a permanent mortgage or get a new loan to pay off the construction loan (sometimes called the “end loan.”)2

Get Ready to Lay Lots of Groundwork 

As you gear up to apply for a construction mortgage, you should probably do some serious stretching. These loans require a ton of legwork on the borrower’s part. You’ll need to jump through numerous hoops to prove your home-building project is real, viable and relatively low-risk for the lender.

You’ll need to provide the lender with a project timetable and a realistic budget for most construction loan applications. You’ll also need to supply a comprehensive list of construction details, including everything from floor plans and the type of building materials to insulation and ceiling heights. (Experienced builders typically create a “blue book” that includes all of these details for a home-building project.)

Prepare for a Sizeable Down Payment

At a minimum, most lenders require a 20% down payment on a construction loan, and some require as much as 25%. Why are the down payment requirements so high? Because construction loans are viewed as “higher risk” than a traditional mortgage loan, and the lender wants to ensure you don’t walk away from the project.2 

Know Where You Land

If you don’t already own the lot where you plan to build, the land cost will need to be included in the overall amount of the construction loan. If it’s financially possible, try to pay for the land upfront. Otherwise, you’re going to have to make a much larger down payment to qualify for the construction loan.

Work With a Qualified Builder

To gain approval for a construction loan, you’ll need to prove you have a qualified builder involved in the project. A qualified builder is usually defined as a licensed general contractor with an established home-building reputation. 

If you intend to act as your general contractor or build the home yourself, this presents a unique challenge – and you likely will not be approved for a standard construction loan. In this scenario, you may want to turn your search to owner-builder construction loans. Unfortunately, it can be tough to qualify for these types of loans in today’s housing market. Still, it is possible to provide a well-researched construction plan that demonstrates your home-building knowledge and abilities. Don’t forget a contingency fund for surprises.  

While building your own home from the ground up can be an extremely rewarding process, landing a construction loan is no walk in the park. To increase your chances for approval, put together a detailed project plan, get a qualified home builder involved and save up enough money for a large down payment before you apply.

Types of Loans

Lot Loans

The first type of loan you will need unless you already own a piece of land outright or plan on paying cash for the property is a lot loan.

  • Lot loans are available from a variety of financial institutions.
  • Land prices and interest rates vary according to the value and location of the lot as well as the size of your down payment, among other things.
  • The closer to a municipal centre, the more expensive the land is likely to be.
  • Lot loan periods range from two to twenty years and can have floating or fixed rates.
  • Consider various factors when selecting a home site, including its proximity to a city or town centre, its potential value in the coming years, the quality of the local schools, and local laws on land use and zoning. You will need to close on the lot before you can get permission to begin construction.

To qualify for a lot loan, the bank or lender will need to know how much you can provide as a down payment – your annual earnings, the total cost (principal and interest) of the loan, its duration, and your financial history. You may also need to provide information on events that have affected your financial stability in the past.

Count on putting more money into a down payment than you would for a traditional mortgage loan. 

Construction Loans

If you plan to finance your custom home, you will need a construction loan. Construction loans are specialized financial instruments that aren’t available at every bank or financial institution. However, a reputable custom builder will know which banks offer construction loans and help you secure the loan.

Construction loans are of short duration (usually 12-18 months depending on the project’s scope) and typically require a down payment of anywhere from 20% to 30% of the total loan cost. A twelve-month construction loan will require a substantial down payment, and the interest rate may be higher than your permanent financing (mortgage), depending on your creditworthiness.

  • A construction-to-permanent loan (C2P) may also be known as a one-step or single-close loan. This loan automatically converts to a standard mortgage after construction. The lender may call the conversion a modification or a refinance, but you won’t need to go through the loan application process again. Payments may be higher than on a standard mortgage but may change at conversion.
  • A standalone construction loan is a short-term loan to fund the building project. Once construction is complete, you must pay off the loan. Otherwise, you must apply for a mortgage. A lender providing the construction financing (but not the mortgage) may want to see evidence of pre-approval for the permanent mortgage before approving a construction loan.
  • Although this post is about new construction, there are also renovation construction loans. You may be able to bundle this with a traditional mortgage, and there are government programs you can take advantage of for some renovations.

Mortgage-Based Loans

Finally, you need a mortgage (i.e. “permanent” loan) for the completed home. If you took out a construction-to-permanent loan, you wouldn’t need to pay another set of closing costs. Mortgage-based permanent loans are the typical loan that most people use to buy a home. Interest rates vary depending on the value of the completed house, your financial position, and other considerations.

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