Raising the money to build your own home

How to raise the Money to build your own Home:

Building your own home is a way to get a home which may meet all your needs and may cost less than buying one already built from a developer. Financing this type of work can be a major problem but some mortgage lenders are able to help.

How to work out your budget

You need to plan your budget carefully so that you know how much the project is going to cost in total. The mortgage lender will ask for this and you need to make sure that you have covered all your costs such as land costs, professional fees, building work, materials, etc. Make sure you know what you can take on yourself and employ an architect, surveyor, planning consultant and project manager if necessary.

You are probably going to borrow a large sum which you have to pay back whatever happens to the building. You need to make sure that you hire a good builder in order to reduce the risk.

Getting the right insurance and warranty cover is also vital so that you can be protected against some of the risk if things go wrong. You will also need to cover your legal expenses. It is essential to include an amount for contingency - to cover unexpected costs which might come up

There are two types of mortgage which could be used. The first option is a traditional arrears-based mortgage released in staged payments on completion of each stage. The second option is an advance payment scheme which releases funds in advance of each stage of construction and removes the need for bridging loans. The stages can be fixed or flexible but there are usually five and these depend on the type of building work. Not many mortgage companies will offer an advanced payment, this is due to the risk involved.

How lenders decide how much you can borrow

When you take out a mortgage, lenders look at a number of things to work out how much you can borrow. These include your earnings and outgoings, the property value and your credit history. Whatever you borrow, you need to be sure you can afford the repayments.

Your earnings:

Lenders will offer to lend you an amount based on your earnings. They will normally want to see proof of your income and will also look at your regular outgoings. It's important to give your lender as much detail as you can about your earnings and outgoings so that you're offered a mortgage you can afford. You also need to remember to budget for the one-off costs of buying a property such as administration and solicitor fees and Stamp Duty.

The property value:

Your lender will arrange a valuation to check how much the property's worth. Most lenders will offer up to 90 or even 95 per cent of the valuation if they think you can afford it.

Your credit history:

Your lender will check your credit history and ask previous lenders or landlords for references. If your record shows you've had difficulty with loans or rent payments in the past, it may affect how much you can borrow.

Don't be put off if a lender refuses you a mortgage or offers you an expensive deal - it's still worth shopping around.

Mortgage Arrears or Payment Difficulties

Difficulties with paying your mortgage - what to do, who to contact and who can help

If you can't meet your mortgage repayments, or you're worried you might fall behind, it's important to contact your lender as soon as possible. Lenders have procedures for tackling payment difficulties and they'll try to help. You can also get free independent advice from other organisations.

Mortgage lenders are keen to help their customers sort out any payment difficulties. Also, the law says they must treat you fairly and take your circumstances into account. They may be able to come to a payment arrangement with you.

If you're struggling to make the payments:

Depending on your payment history and whether your difficulties are likely to be long or short term, your lender might agree to:

• reduce your payments for a set period
• charge you interest only for a while, if you've got a repayment mortgage (usually you pay capital and interest)
• give you a 'payment holiday'
• extend your mortgage term to reduce your payments

If you're already in arrears:

If you've already fallen behind, your lender will suggest a way to pay off the arrears gradually, alongside your usual payments. If you can't meet the extra payments, you may be able to delay them for a while or add them to your loan. Again, it depends on your track record.

Always pay what you can:

Pay as much as you can manage every month. Keeping up regular payments (even if they vary) shows that you're committed. Your lender's more likely to treat you sympathetically and you'll minimise the arrears charges too.

According to the Council of Mortgage Lenders, long-term arrears are still at relatively low levels although repossessions are up slightly but, nevertheless, considering all the main debt advice agencies have been reporting big increases in the numbers of people phoning their helplines, there is certainly cause for concern.

Local Citizens Advice offices dealt with 1.25 million debt problems last year while the Consumer Credit Counselling Service reports an increase of 27% in helping people to set up debt management plans. The number of people opting for bankruptcy or Individual Voluntary Arrangements is also rising rapidly.

And, although part of this can be attributed to greater awareness amongst the public of addressing debt problems sooner rather than later and that there are debt advice agencies offering help, it's still a fact that the major banks have been reporting sizeable increases in the amount of bad debts that they're having write off.

Types of Mortgage- What The Best Mortgage?

Types of mortgage

When you choose a mortgage, you'll need to think about the repayment method, interest rate deals and special features of some mortgages. The best one for you will depend on your circumstances - so it's important to understand your options and shop around for the best mortgage.

Repayment (capital and interest) and interest only mortgages explained; fixed rate, variable rate and other interest rate deals; flexible, current account and offset mortgages features Money, tax and benefits section. There are so many types of Mortgage such as:

Buy to Let Mortgage: A type of mortgage taken out by people who want to become landlords. It's a way of investing in property and bringing in an income.

Discount Rate Mortgage: A mortgage with a guaranteed reduction in the variable mortgage rate (say, 2% below the variable, whatever it may be). Generally lasts for an agreed period and if you change mortgages within that time, you will pay a redemption penalty.

Current Account Mortgage: A type of mortgage in which your debt is effectively held in your current account. Interest due is calculated daily as opposed to yearly, which can make a significant difference to the cost for those on a REPAYMENT MORTGAGE. Also more flexible and allows periods of both under- and overpayment of the mortgage to suit the borrower's changing financial circumstances.

Capped Rate Mortgage: The mortgage interest rate cannot go above a certain level, even if mortgage rates rise, but can fall down as rates drop. Ain't no free lunches, though, and if you want to extricate yourself from the mortgage during the capped rate period (say three or five years), you'll have to pay a redemption penalty.

Stepped Rate Mortgages: A bit like a discount mortgage except the interest rate goes up in stages rather than in one fell swoop. They comprehensively fail the Foolish maxim of "keep things simple" and are best avoided.

Interest Only Mortgage: Monthly payments to the lender are made up simply of interest. You don't pay off any of the capital of the mortgage during the term of the mortgage, but do so at the end, having accrued a large enough pot of money in an investment fund. Classically, these investment funds have been endowments, but we're pleased to say that ISAs are increasingly being used.

Leasehold Mortgage: If you buy leasehold mortgage, you only own the property itself for an agreed period of time - not the land on which it is built. An example of this might be a 99-year-lease on a flat where you pay an annual rent (called the "ground rent") to the owner of the freehold of the building which contains your flat. At the end of the 99 years the property reverts to the "freeholder" of the building. The value of your flat will decrease as the lease gets shorter.

Remortgage: When you move your mortgage to another lender. You might be able to get a better deal, but watch out for redemption penalties. Also, it's always worth checking to see whether your current lender can give you a better deal before going to the extra trouble and expense of moving to another.

Repayment mortgage: The monthly repayments pay off both the interest and some of the capital on the mortgage. By the end of the mortgage term, the debt has all gone and the house is all yours.

Mortgage Interest Rate

How to Get the Best Mortgage Interest Rate

Interest rates are probably the most important part about buying a house. After all, your aim is borrow the money you need for the least possible cost, so you need to assess which type of interest rate is best for your particular circumstances.

Fixed rates:

The rate of interest is fixed for a certain length of time, so you'll know exactly how much you'll need to find each month to pay the mortgage. The fixed rate is great for people who are a little stretched financially and need to know where they stand from pay cheque to pay cheque. They're also good value if interest rates look set to rise in the early years of a mortgage, although bear in mind that the mortgage providers are likely to be one step ahead of you and adjust their fixed rates accordingly. However, a fixed rate also means you could be lumbered with paying more than everyone else if general interest rates fall below the figure you've set yours at. But that's the risk you take in exchange for having certainty about how much you will pay each month.

Tracker rates:

A tracker mortgage is a variation on a standard variable rate. With a tracker mortgage the difference between the Bank of England base rate and your mortgage rate is fixed. Although standard variable rates closely follow the base rate, they are not formally linked to it. So if you want to ensure a cut in the base rate is always passed onto you in the form of a lower mortgage rate then a tracker could be for you. Of course, the flip side is that any rise in the base rate is also passed on straight away.

Standard variable rate:

This is the general rate of interest that lenders use and it's usually the most expensive option for the borrower. The standard variable rate is linked to the Bank of England's base rate and moves up and down in line with it, and a typical rate at the moment is about 1% to 2% higher than the base rate. So whenever you hear that the Bank of England has raised or cut interest rates by a quarter of a percentage point, you'll know your mortgage rate is probably about to go up or down by a similar amount.

If you're on this sort of standard rate, you'll probably notice that lenders like to introduce any increase with effect immediately and to delay any cuts by a month or two. it's never going to be the cheapest deal on the market so if you find yourself landed with it, be aware that you're effectively subsidising all the other borrowers who are taking advantage of any cut-price special offers! However, note that most special offer deals will revert to a standard variable rate once the offer period has expired.

Discounted rates:

This is simply a percentage discount off the lender's variable rate. So your monthly payments will move up and down in accordance with the lender's normal rate but you'll be paying at a reduced rate over the relevant time period. These are quite good for first-time buyers as a discounted mortgage can give you a couple of years of breathing space. A one or two per cent discount is especially good if there's no lock-in period afterwards because you can simply re-mortgage with another lender when the discount period comes to an end. Unfortunately, you'll often find you're locked in for another couple of years on the variable rate, so you won't be able to get out of this sort of deal unless you're prepared to pay huge redemption penalties.

Capped rates:

These ensure that there is a ceiling to the interest rate you will pay over a given period of time. If your lender's variable rate climbs higher than the capped rate you will benefit. But if it falls below the capped rate you'll just be paying what everyone else is paying.

Capped rates tie you in to the mortgage for a set period of time, similar to fixed rates. Capped rates give you part of the advantages of fixed rates and of variable rates. Again, you'll have to give something back for this. For example, the capped rate is likely to be higher than any fixed rate you can get. Like fixed rates, they make good sense for those on tight budgets who need to ensure that their monthly payments don't rise too far.

Which type of interest rate is suitable for you?

Suitability of different deals will depend on your personal circumstances and any tie-ins or penalties that may be attached. For more information on the pros and cons of different interest rate deals visit the Financial Services Authority (FSA) website.

Make Finding A Mortgage Easier

We Make Finding a Mortgage Easier: It's all about Mortgages & Facts

Our impartial, practical information and tools can help you get a foot on the property ladder or move from your existing home: Here is a list of issues we are going to cover

1. Real Facts about Best Mortgages Rates :

First, find out what is a Mortgage? How to choose a suitable mortgage, what is the mortgage application process and mortgage interest rate options
Money, tax and benefits section
1. A mortgage is a loan you take out to buy property, Most banks and building societies offer mortgages, as well as specialist mortgage lending companies. If you change lenders but don't move home it's referred to as a 'remortgage'.
It's harder to get on the property ladder today than it's ever been. But there are many ways first-time buyers can get a leg up.
Of course, if this is your first house purchase this is all pretty daunting stuff. It's also extremely expensive, as you have to find an awful lot of money. Luckily, you'll find a bit of help as lenders usually give preferential mortgage rates to First Time Buyers (FTB). What's more, you may even have your legal fees or surveys paid for you

2. How to go Through About Mortgage application process

The best key steps to follow when you apply for a mortgage, whether you're applying for the first time or changing lender, Money, tax and benefits section

Once you know roughly how much you want to borrow and have identified your preferred lender, there are key steps to follow to get a mortgage. These are the same whether you're borrowing for the first time or changing lender.

If you understand the application process you can be ready with everything the lender needs. This can help speed up your mortgage application.

You can get a decision in principle (DIP) from a lender even before you've chosen your final property. This shows whether they're prepared to lend to you and how much. The decision's based on information you give about:

• your income
• your employment status
• the sort of property you want to buy

Most mortgage lenders can give you a decision in principle online as well as through the post. DIPs trigger a credit check, which show on your credit record. Too many may affect your chances of getting a mortgage so only ask for one when you've settled on your lender.

Never be tempted to overstate your income. You could end up with a mortgage your can't afford.