Borrowing Money for a Down Payment
While building your own home can cost a lot less than buying a pre-existing structure, it is still a major investment. Unless you have a huge amount of money saved up, you are probably going to have to take out a mortgage to pay for the land, materials, and construction costs.
While you can get a mortgage that does not require a down payment, these are rare, and are usually quite poor value. Usually, you will have to pay at least ten percent of the total cost of the property up front, so if the house is going to cost £150,000, you will have to pay a down payment of at least £15,000.
If you are prepared to be patient, the best way to come up with this money is to save it up using a high interest savings account. However, if this is not an option, you will have to borrow the money from somewhere.
The cheapest way to do this is to ask your parents, or another friend or relative that you are close to and is financially secure. They might be in a position to lend you the money outright, and this would be the most straightforward, and least risky way to go about it.
If not, you might be able to get them to take out a secured loan on your behalf. A secured loan is one in which you put up your home as collateral for the loan, so that if you fail to make repayments, the lender can repossess the property in order to recover your money. As this removes the element of risk for the lender, they are in a better position to offer higher loan amounts at a lower rate than they would be with an unsecured loan.
Using Unsecured Loans
Unsecured loans are ones in which the borrower does not have to put up any collateral, which makes them more risky from the lenders point of view, as there is always the danger that the borrower will default on the loan. However, if you are not able to call on your parents or anyone else for help, this may be your only option.
In order to secure a loan big enough for a mortgage down payment, you will need to provide proof of income, and undergo a credit check. If you have a history of missed payments or defaults, you may not be able to obtain an unsecured loan. If you are borrowing money for a down payment, you have to make your mortgage lender aware of this, and they may demand that you borrow the money from them.
For more information about mortgages and loans, visit the Santander website.