Self-build financing? Here's how to do it!

Realizing a home that fully meets your needs, with the perfect style, materials, layout and location, sounds like a dream come true. But, despite the many benefits, many hesitate to take this step because of the challenges with financing. Obtaining a mortgage for self-build often proves more complex than for an existing home. Yet, it is certainly not impossible!

When purchasing a new construction project through a real estate agent or developer, you have some say in the layout, bathroom, kitchen and finishes. There are additional aspects involved, such as deposit interest, construction interest and project interest, on top of the usual mortgage aspects. In the case of homebuilding on your own, you have complete freedom in the design of your home, without the restrictions of an existing construction project. However, this comes with greater risk than with an already developed new construction project. This risk becomes clear when arranging your mortgage.

Costs when building your own

Two types of costs come into play when realizing your own home:

1. Plan costs
Before construction begins, you already have costs. Think of drawings, calculations, building permits and consulting experts. These costs are paid in advance from your own funds, not from the mortgage.

2. Construction costs
Foundation costs include land costs (lot price, title transfer), construction costs (contractor and materials) and ancillary costs (such as gas, water, light, architect, permits, etc.). These costs are financed by your mortgage.

Mortgage for self-build

When applying for a mortgage, you must demonstrate two things to the lender. First, you must be financially able to repay the loan, with sufficient monthly income being crucial. In addition, the collateral, your home, must be of sufficient value. You are unlikely to get a €200,000 mortgage for a house valued at half that amount. An appraiser calculates the value of the house based on construction plans and the land purchase agreement. This emphasizes the importance of detailed plans when obtaining a mortgage.

Additional conditions for self-build financing

Similar to mortgage applications for existing construction, lenders typically require the following documents with self-build:

• Completion guarantee: If the contractor goes bankrupt, this guarantees the completion of your home. If you are working without a contractor, there must be a realistic budget.
• Zoning for "residential.
• A building permit obtained.
• Conducted soil testing, often as a condition of land purchase agreement.
• Documented future costs.

Each lender may have different document requirements. Our mortgage consultants will be happy to help you submit the right information.

Building depot for expenses

Once your mortgage is approved, the amount is deposited into a construction deposit. This acts as a piggy bank to pay contractor bills. Payment dates and amounts are established in the purchase contract. The money in the deposit earns interest.

Especially if you have unique or sustainable building needs, self-build can be an attractive option. Although financing works differently, it can be the path to your personalized home. Want to know more about financing self-build or new construction? Contact us without obligation, our advisors will be happy to provide you with advice.