Considering a move to a large, more versatile home? Looking at realistic yet affordable options for upsizing? If the answer is ‘yes’, there’s an even more important question you might want to ponder:
Have you considered the option of building your next home from scratch?
Commissioning a new-build home can be advantageous in countless ways. Along with being built from the ground up to your exact specifications, you could also be looking at a far cheaper investment than an existing home. Not to mention, superior energy-efficiency, minimal ongoing repair costs and the opportunity to live just about anywhere you like.
Of course, all of the above is dependent on first coming up with the cash you need to build you new home. In most instances, you’ll be looking at a choice of three primary funding options – developer loans, construction loans and bridging loans.
If looking to buy a new home being built by a developer as part of a wider construction project, you may be able to arrange financing directly through the developer. Depending on whom you work with and the nature of the development, these kinds of loans can attach decent rates of interest and low overall borrowing costs.
If you choose this funding option, you’ll agree to the terms of the loan ahead of time, but won’t actually sign on the dotted line until the property is fully built. Deposit requirements vary from five per cent to 30 per cent and up.
Unless you can cover the costs of the new home out of your current savings, you may decide to apply for a construction loan. However, as construction loans are not as widely available as conventional mortgages, you may need to search for a good deal, or involve an independent broker.
Some construction loans are offered in the form of interest-only loans during the construction period, which switch to more conventional mortgages upon completion.
The biggest downside of construction loans being the requirement for an excellent credit score, along with a minimum 20 per cent-25 per cent deposit. However, the stronger your credit score and the larger the deposit, the lower the interest rate and overall borrowing costs.
A bridging loan is designed to serve as a short-term financial solution, to be repaid in full in a matter of months. In this instance, a bridging loan could be used to ‘bridge’ the financial gap between selling your existing home and funding the new-build. An agreement could be reached wherein you’re provided with the money you need, to be repaid when your current home sells a little further down the line.
Typically secured on existing assets, bridging loans attach some of the lowest borrowing costs and flexible qualification criteria on the market. No credit checks are necessary – nor is proof of income.
Nevertheless, you’ll need to ensure you can pay the balance back at the agreed time, in order to avoid the risk of losing the assets on which the loan was secured.