In this short article, we will look at what you can borrow, how you can borrow, and what restrictions you might come across. Please note that while the information in this post is correct, your own personal situation will determine what the best course of action is for you. Speaking to an independent financial advisor will help you to see if you are eligible for construction finance and how to go about getting it.
Different Types of MortgagesLet’s start with the different types of mortgages that may be available to you. Remember, whether one is better for your needs than another depends on many factors.
Commercial MortgagesLet’s start with commercial mortgages because they are, in general, the most like private residential mortgages. In other words, you want to buy a property to base your business in (rather than live in) and you don’t have enough money to pay for that property in cash.
Like residential mortgages, the more deposit you have, the easier it is to get a commercial mortgage. However, also like residential mortgages, it is possible to borrow up to 100% of the value of the property. You will need to have an exceptionally good credit history, of course, as a 100% mortgages means a lot more risk for the lender.
We shouldn’t forget though that we’re talking about building projects here as well so you should remember that if you’re going to use a commercial mortgage for renovation purposes, then your renovations cannot be major and that your property needs to still be habitable.
Renovation MortgageFor more major building projects, such as renovating properties that are uninhabitable, you’ll probably need to look at getting a renovation mortgage. The major drawback with this type of financing is that the amount of money lent is based on the value of the property as it is. This may seriously restrict what you can do with the property.
However, there is a silver lining of sorts. As you renovate your property, its value will increase. By getting your mortgage lender to inspect the property and see that the work has been done, you may have the opportunity to borrow more money using the balance of your property’s new value.
The real problem is that the funds from a renovation mortgage may only be released in stages, so you will have to look at other means of financing your renovations. The good news is that when the renovations have all been completed, you can borrow up to 90% of the value of your renovated property and pay off any outstanding loans you took out earlier on.
Different Types of LoansTaking out a mortgage is a major commitment and may not be necessary for some circumstances. Let’s look at some other ways of getting financing that may not only be quicker but also cheaper.
Home Improvement LoansIf your next building project is not something as major as renovating a commercial property or renovating an entire house then a home improvement loan may be the way to go. This is especially true if you already own the property that you wish to work on.
Having said that, it is possible to release funds by either remortgaging your property or taking out a personal loan. However, either option will probably only be necessary if you’re doing something major or minor respectively. A good example of when a home improvement loan is suitable would be for something like an extension.
Home improvement loans can either be secured or unsecured. Since a secured home improvement loan is pretty much the same as remortgaging your home, in the sense that you have to pass all the same tests, you should shop around for the best terms. You may end up being better off remortgaging anyway.
Bridging loansBridging loans are not the best type of loan to have for a few different reasons. The first and most important one is that they are expensive, substantially more than a standard loan. They are also only for a fixed amount of time so if you end up needing to extend your loan, you’re going to end up paying even more. So why would you take one out?
Bridging loans are often used as a way to borrow money using the collateral of one house to pay for the renovations of another one. For example, you could take out a bridging loan if you need to renovate your new home, but the proceeds from the sale of your last home are not available. Basically, you’re borrowing money to bridge the gap.
Self-Build LoansFinally, we just have space to talk about self-build loans. This type of loan is specifically for someone who wants to build their own property. This is popular with people who either have some money but not enough to build the complete property or for people who have little to no money.
However, and this is the reason it’s at the end of this article, a self-build loan is difficult to get. There is a high degree of risk with this type of loan because of the myriad of different things that could go wrong. Also, because of the risks involved, your repayments are going to be much higher as are fees and other sundries. While there may be good reasons to look for a self-build loan, other options would almost certainly be worth looking into.