How to Build Your Own House?

03:18 AM September 05, 2019

When it comes to building your own home,  selecting the right contractor or home construction company is crucial, the most tedious part is not the laboring part, but the monetary aspect. Once you’ve got money and a basic idea of what your dream home would look like, you’re good to go.

It’s as simple as paying the contractor, closing your eyes and waking up to your dream house.

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Yeah, you heard that right — waking up to your dream house mostly only happen if you build your home.

The issue most people have with the monetary part of home building is not that they’re as broke ASF, but their current budget is not enough to get them their perfect home.

If you belong to this category or you don’t have any money to complete the foundation, let alone roof the house, all hope is not lost. You can apply for a mortgage.

Ready For a Quick Quiz?

In simple terms, the Cambridge dictionary defines mortgage as, “an agreement that allows you to borrow money from a bank or similar organization, especially in order to buy a house, or the amount of money itself”.

Not having “much money” ceased to be a legit reason for not being a landlord. You might be asking yourself…

“How can I get a mortgage?”

This article provides the answer to your question alongside the steps to building a home. Read more.

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How Building Your Own House Can Boost Your Credit

Getting a mortgage is certainly not the end of it all, being monetarily capable of homeownership is the real deal.

You have to ask yourself sincerely — Am I ready to face the responsibilities of homeownership?

Reconsidering your credit is the first step to figuring out how to build your own house.

Reconsidering your decision to start building your home involves reviewing; your debts, savings, and closing costs.

In addition, understand that creditors check your credit score before giving you a mortgage.

Know your credit score and make it better.

You can improve your credit score by reducing outstanding debts, disputing errors on your credit report and halting your application to other loans or credit cards.

Get Your Creditor’s Pre-Approval

After reviewing your finances, improving your credit score and ability to sustain the responsibilities attached with homeownership, you’re set for the mortgage pre-approval stage.

Getting the creditor’s pre-approval means you’ve decided how much you’re willing to borrow.

It’s a bold step that keeps you from being tempted to borrow more and presents you to the seller(s) as a buyer with a fixed budget.

Pick the Perfect Mortgage for You
Build Your Own House

Before picking a mortgage, you need to understand these three factors:

Types of loans: Depending on the body backing your loan, there are two types of loans — conventional loan and government-backed loan.

A conventional loan is given by private creditors and banks. They offer loans to individuals with high credit scores and down payments.

However, they offer high-interest rates and unfavorable loan terms to people with low credit scores.

On the other hand, to qualify for a government-backed loan, you don’t need a large down payment.

Also, governments offer mortgages to people with relatively low credit scores at good rates.

Rate of loan: The interest rate on a mortgage can either be fixed or adjustable.

The safest rate seems to be a fixed rate, as the home loan interest rate will remain the same over the duration of the loan.

However, adjustable rates could help save in some cases.

Term of loan: You ought to choose between a 10-year, 20-year or 30-year home loan.

The longer the duration of payment or term of the loan, the higher the total interest paid overtime while the shorter the term of payments, the lower the interest rate paid overtime.

Though your monthly payments might be lower for longer durations, the total interest value is higher compared to a shorter payment duration.

Whether a loan is perfect for you or not largely depends on your financial capacity and future goals.

Though, it’s not advisable to borrow more than you can payback.

Submit your mortgage application with the supporting documents:

  • Proof of various means of income
  • Recent bank reports
  • Federal tax returns from the last couple of years
  • Information on long-term debts like student or car loans
  • Social security number
  • W-2 forms from the last 2 years
  • Pay stubs from the previous month

Depending on the lender and mortgage, there might be other forms of information and documentation demanded.

When submitting your application, you will have to wait for the underwriting process to be completed by the creditor.

It involves the evaluation of your Debt-to-Income ratio, credit history, and other debt obligations.

After the loan to build your own house has been approved, you can prepare for the closing process.

When Building Your Own Home Closing Process is Lower.

Congratulations on the approval of your mortgage. Take these steps to advance towards your dream house.

Do you want discount points or an upfront fee, which would reduce your interest rate? You can only opt-in for an upfront fee if you intend on staying in your home for a minimum of seven years.

Your creditor would expect you to get homeowner’s insurance.

Ask around for the most suitable options.

Not getting insurance on closing might force your lender to help you choose a more expensive insurance policy.

Though getting a lender’s title policy is not mandatory, it’s advisable to get it.

The homeowner’s insurance policy and owner’s title policy would protect you and the creditor if any issue arises with the title or claim to the property along the line.

Finally, inspect the house and request a closing disclosure.

Close on the home

The current mortgage closing regulations created by the Consumer Financial Protection Bureau might extend the duration of the closing process with the aim of reviewing all the documents before closing and preventing any errors.

Most of the time the amount paid in closing costs is 2% and 5% of the property purchase price.

If your down payment is lower than 20 percent of the purchase price, you would have to settle for private mortgage insurance.

This monthly payment is mostly on low-down-payment home loans to shield creditors if the debtor doesn’t pay.

After getting 20% equity in the house, you could decide to get rid of your PMI.

Let’s say you’re having doubts at this point of the closing process, you can still opt out but you might not get back your deposit, aka earnest money.

If you don’t understand any part of the agreement, ensure you ask your loan providers.

I know the loan paperwork could be burdensome, but it’s advisable to go through it thoroughly before signing, so as to avoid unnecessary surprises.

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