In times where personalization and individuality take center stage in many aspects of our lives, building your own home by yourself has become an attractive option for many. This is where a financial tool comes into play that, although not new, has gained relevance in recent years: the self-developer mortgage. But how does the self-developer mortgage work? In this article, we’ll explain all the key details of this type of financing designed specifically for those who decide to embark on the adventure of building their home from scratch.
What is a self-development mortgage?
When we talk about a self-development mortgage, we are referring to a type of mortgage loan granted by banks to finance the construction of a home by the applicant himself, that is, the future owner is in charge of the development of the work. Unlike traditional mortgages, where the credit is used to acquire an already built home, in this case, the funds are specifically allocated to the building process. The self-development mortgage works in a slightly different way. The loan disbursements are not made all at once, but are released at different stages of the construction project, and are subject to the certification of progress of the work by a technician. This means that the bank will verify that construction is progressing as planned before releasing any more funds. In addition, it is important to mention that, generally, the self-developer mortgage covers between 60% and 80% of the total value of the project, which requires the applicant to have their own funds to cover the rest of the expenses.
Pros and cons of opting for a self-development mortgage
Pros
- Total customization: As you are the developer of the construction, you have total control over the design, materials and finishes of the home.
- Possible economic savings: Although this is not always the case, many self-developers find that, by directly commissioning the construction, they can save on certain aspects when compared to buying an already built home.
- Financing conditions: Although they vary depending on the entity, some mortgages for self-developers offer more favorable conditions or lower interest rates than other types of loans.
Cons
- Complex management: When you become a self-promoter, you must be in charge of the comprehensive management of the project, which can be complicated if you do not have previous experience.
- Financial risks in addition to those foreseen in the initial budget: As in any construction, unforeseen events may arise that require additional investments, so it is crucial to have an economic cushion and plan carefully.
- Construction time: Depending on the size of the project, construction may take longer than anticipated, which may affect the terms of the loan or your own moving plans.
- Need for a reliable architecture studio: to help you with these periodic procedures and validations.
Requirements and necessary documentation
Getting a self-development mortgage is not a simple process and usually requires a series of specific documents and requirements:
- Building license: Before the bank approves the mortgage, you will need a building license granted by the relevant town hall.
- Construction project: It must be prepared by an architect and endorsed by the College of Architects, and must reflect in detail what the house will be like and what materials will be used.
- Evaluate the land: A certified expert must evaluate the value of the land where it will be built, and certify that it is a developable plot and is registered in the Land Registry
- Damage insurance or guarantee: Financial institutions usually require insurance that covers possible damage during construction.
- Clean credit history: As with any loan, it is essential to have a good financial history in order for the bank to approve the mortgage.
How do rates and terms affect a self-development mortgage?
Compared to a traditional mortgage, how the self-developer mortgage works may have particularities in terms of rates and terms:
- Installment disbursements: You will not receive the total of the loan at once. Instead, the bank will disburse the money in stages as construction progresses.
- Variable interest rates: Rates can be different during construction and after completion. For example, during construction, a variable rate could be applied, and once the house is finished, a fixed rate could be consolidated.
- Grace period: Some banks offer a grace period during which you will only pay the interest, and not the principal. This makes it possible to lighten the financial burden during construction.
- Revision of conditions: The initial conditions could be revised if the construction takes longer than expected. It is crucial to be informed about these clauses.
Final considerations before deciding on a self-development mortgage
Opting for a self-development mortgage is a transcendental decision and, as such, requires an in-depth analysis:
- Financial stability: It is essential to have a solid financial situation, since, beyond the loan, unforeseen expenses may arise during construction.
- Professional advice: Given the complexity of the process, it is advisable to have experts in the field, both in the field of construction and finance.
- Flexibility and patience: The works can take longer than expected and unforeseen events may arise. Having a flexible and patient approach is key to bringing the project to fruition.
- Long-term vision: Although it may seem that the process can be uphill, the end result will be a home designed to suit you. Keeping that vision in mind will help you overcome the challenges that come your way.
Kaleidoscope: Your ally in the construction and management of your project
We have already seen how a self-development mortgage works, and if you think it can be of help to you, it is also vital to have trusted professionals by your side. At Kaleidoscope, we are not only experts in comprehensive renovations, but we also deeply understand the process of self-promotion and the steps that this implies. Our team is ready to advise you at every stage, from the conception of the architectural design to the completion of construction. In addition, we understand the complexity of the financial and administrative procedures related to self-development mortgages. That’s why we offer our experience and expertise to make your process easier, ensuring that the process is smooth and smooth and smooth with setbacks. Building your own home is an adventure that combines passion, vision and technique. At Kaleidoscope, we work to make that vision a reality, guaranteeing quality, commitment and personalized attention. If you would like to know more about how we can help you, please do not hesitate to contact us. Transform your dream into a tangible home and enjoy the process with the security of having the best professionals by your side.
