For most people getting their finances in order is an important starting point for their self build project. If you need to borrow money then finding the right mortgage for your build is crucial to ensuring the success of the project.

In many ways, the principles of a self-build mortgage are the same as those for a conventional mortgage lending criteria is usually income based, meaning that lenders will be willing to provide up to around 5 times a single income or, based on other criteria, up to 60% or so of your monthly disposable income.

Payments will be the same and most self-build mortgages have the same payment options as conventional mortgages: fixed rate, interest only and so on. In addition, you'll still have to raise a deposit in the same way that you would for most conventional house mortgages most lenders offer a maximum loan to value of 90% on the land and 90% of the actual build costs.

The main way a self-build mortgage differs from a mortgage you would use to buy a house is that with a self build mortgage the money is released in stages as the build progresses. This enables the lender to secure their own investment as progress continues and the asset becomes more valuable. There are however different ways in which this money can be released and your choice of product will depend on your own particular circumstances.

Many decide to build their own home rather than buy - you get a property designed entirely around your needs in your chosen area, and in many cases, you can save up to a third of the price of a ready-built property.

You can get a mortgage direct from the lender (banks, building societies and specialist mortgage lenders), or you can use a mortgage broker. You can buy based on 'information' only or get advice and recommendation on a mortgage that suits your particular needs.

You will also need to consider how you will pay for your living arrangements during the project which can take a year or more to finish. Bear in mind you’ll need to pay a mortgage on the unfinished property as well as rent or mortgage on your current address.

You will only pay interest on the self build mortgage on the amount drawn down and so payments on the mortgage will increase as the work progresses. So the quicker the build is completed, the more efficient it is from a financing perspective.

Getting a self build mortgage is more complicated and involves more paperwork than a traditional mortgage. A lender will want to see the plans for the property and the projected building cost.

You’ll also need to have the appropriate planning permissions in place. This shows to the lender that the plans have been submitted and agreed by the local planning authority for the building of a specific size and type of house.

How much you can borrow depends on the mortgage provider, although some lenders will lend up to 90% of the value of the site and building costs combined. Where the site is gifted or inherited, you could get 100% of the construction cost, once the overall value of the mortgage does not exceed 90% of the final market value of the property.

Getting approval also depends on all other lending criteria being met and getting a self build mortgage is usually more complicated and involves more paperwork than a traditional mortgage. A lender will want to see the plans for the property and the projected building cost.

You’ll also need to have the appropriate planning permissions in place. At the very least, you’ll need outline planning permission but most lenders will expect you to have full planning consent. This shows to the lender that the plans have been submitted and agreed by the local planning authority for the building of a specific size and type of house.

How much you can borrow depends on how much you can afford. Lenders will check this but you can too. Lenders should lend responsibly. This means that they should consider whether you can keep up the mortgage repayments now and throughout the term of the mortgage; for example after an initial discount period ends. They should base this on things like your income, expenditure and other circumstances.

Lenders may take into account:

• If you have other money coming in, such as bonuses, overtime or commission. However, since it isn’t guaranteed income lenders may, for example, only take into account half of this money
• If you already have lots of expenses, such as other loan payments, they will offer you less

Recently it has become more common for lenders to make an affordability assessment when calculating how much they are prepared to lend you. Each lender will have its own method, but generally they will all try to calculate your disposable income, taking account of:

• your total income
• any credit commitment such as loans and credit cards
• household bills and living expenses

If you have received advice from a mortgage broker, the firm advising you must recommend a mortgage that you are able to afford. Whether you receive advice or not, the lender must still lend responsibly.

Don’t overstate your income to get a bigger loan. If you lie about your income, you could end up with a loan you can’t afford and possibly lose your home. You’ll also be committing a fraud and could get a criminal record.

The main way a self-build mortgage differs from a mortgage you would use to buy a house is that with a self build mortgage the money is released in stages as the build progresses.

This enables the lender to secure their own investment as progress continues and the asset becomes more valuable.

There are however different ways in which this money can be released and your choice of product will depend on your own particular circumstances.

Every self build project has identifiable stages from the initial digging of the foundations to the final fix and at each stage the value of the build increases. The following chart shows the typical stages in a traditional brick and block construction and in a timber frame construction.

Stage	Brick & Block	Timber Frame
1	Purchase of Land	Purchase of Land
2	Preliminary Costs & fFoundations	Preliminary Costs & fFoundations
3	Roof Level Complete	Timber Frame Kit Erected
4	1st Fix & Plastering	1st Fix & Plastering
5	2nd Fix to Completion	2nd Fix to Completion

Mortgages on Self Build projects are typically drawn down in these five stages. The lender will require written confirmation by the architect or construction engineer at each stage. The final stage payment (completion) will only be released following inspection by an independent valuer.

There are two types of Self Build Mortgage each defined by when you get money during the build. They are called advance and arrears and each are described below.

1) Arrears Mortgage
The traditional type of Self Build Mortgage is on an ‘arrears’ basis. With this type, the lender will release money to buy the plot, usually between 50% to 85% of the purchase price or value of the land and then will release the money for the build in stages to correspond with the build stages outlined above. The money for each stage is paid out at the end of the stage once the work has been completed and a valuer has visited the site i.e. in arrears of the work being done.

An Arrears Self Build Mortgage is best suited to self builders who have sufficient savings to fund the early stages of the build as well as sufficient savings for the deposit on the land. For example, if you already own the plot of land and can remortgage it to provide the funds to start the build or if you have already sold your existing house and have cash available to buy the land and start the build then an arrears mortgage may be the best option for you.

2) Accelerator Mortgage
However, not every Self Builder has access to the cash required to pay the deposit on the land and the first build stages. In this case, an Accelerator Mortgage is used. Here money is released for each stage of the build at the beginning rather than the end of the stage giving you the cash you need to buy materials and pay your builder.

An Accelerator is ideal for many situations, for example if you have only a small amount of cash available and don’t want to sell your existing house to release equity before your new one is complete or if you want to keep the cash you have available until later in the project to maintain a good contingency fund.

There are three main type of interest rates available in Ireland at present:

1. Fixed Rates
2. Variable Rates
3. Tracker Rates

Fixed Rates
Almost all lenders will give you the option of 'fixing in' your interest rate today, for a specific amount of time. This can be as short as one year, or in some cases, as long as 10 or 20 years. Generally speaking, the longer you fix the rate, the more expensive the rate will be.

The big benefit of fixed rates is that you know exactly how much your repayment will be over that period of time, regardless of what happens with interest rates generally, during that period.

The down side is that if variable and tracker rates stay low, or drop further, you are tied into a higher rate. Fixed rates tend to be less flexible than variable and tracker rates, not allowing you for example, to make any additional payments or redeem the mortgage early without a penalty.

The important thing to remember, if you are choosing to take a fixed rate, is that if there is a possibility that you will change lenders, or pay off your mortgage, in say 5 years time, you should take a fixed rate of less than 5 years, or you'll end up paying penalty fees.

Variable & Tracker Rates
Variable and Tracker rates are in most ways very similar - if general interest rates go up, both variable and tracker rates go up too, or if they go down, the variable and trackers rates will go down.

The difference is that with tracker rates, the rate is tied into the European Central Bank (ECB) rate, and you'll know the margin that the bank is charging for the whole mortgage term at the outset.

This means that the bank can't increase rates on a whim - only if the ECB raises their rates. In theory, with normal variable rates, the lenders could raise their rates whenever they like.

Trackers are proving very popular in Ireland at present and generally offer better value than standard variable rates.

It is easy to forget that borrowing to fund a self-build project has its own costs. Finance costs will vary according to personal circumstances, but most people find they have to pay an initial lender’s survey/valuation fee on the plot, plus further fees for each of four or five interim inspections required before the release of mortgage stage payments. To have the site valued, you can expect to pay a standard valuation fee of around €130 -170.

Depending on the arrangement you have with your architect (full or tailored service), you may have to employ them or an engineer to carry out the other interim stage valuations (described above). The cost for each visit can cost between €300 and €500. You will also have to pay for a valuation carried out at the end of the project to establish the final value of the finished project. This could cost between €65 and €100.

If you are contemplating a mortgage where the stage payments are made in advance, be aware that there will be an Arrangement Fee and a Mortgage Guarantee Premium. Part of this cost, however, is offset as there will be no interim inspection fees.

Some special offers, such as fixed rates, may also require an arrangement fee. If you are using a broker to arrange your mortgage there will also be a fee for their services. This could be around €200 to €300.

If you’re having to change lenders in order to obtain a stage payment mortgage, watch out for any Redemption Penalty Charges that might be imposed by your existing lender.

Legal Fees should also be taken into account when applying for a remortgage. Switching from one lender to another will require some legal work; you may have to pay this yourself or your new lender might offer you a free package. However, this freebie will only cover basic legal work so if your circumstances are more complicated (for example, you are adding someone else’s name onto the property’s deeds) you may have to pay extra.

For purchases, the cost of legal fees should be taken into account as part of your overall budgeting costs. However, the cost is likely to remain the same whichever mortgage deal you go with, so it probably isn’t relevant when comparing the true cost of different mortgage deals.

The next important fee to look at is the Early Repayment Charge (ERC). This is deal-specific but tends to be around 3% of the amount borrowed. You will have to pay this fee if you redeem your mortgage fully within the rate period - so, 24 months if you have a two-year fixed rate. Most lenders allow some facility for you to overpay on your mortgage, but if you exceed this amount then you will also have to pay the ERC. Make sure you know how much you can overpay and what the ERC is.

While the ERC might not be relevant when comparing the true cost of a mortgage, it can be the tipping point if you find two deals that are very similar.

Finally, you should also make sure you understand what the fee is when you close the mortgage - this is known as an Exit Fee and covers the lender’s administration costs. This varies but is usually a couple of hundred euro.

You will also need to consider how you will pay for your living arrangements during the project which can take a year or more to finish. Bear in mind you’ll need to pay a mortgage on the unfinished property as well as rent or mortgage on your current address.

You will only pay interest on the self build mortgage on the amount drawn down and so payments on the mortgage will increase as the work progresses. So the quicker the build is completed, the more efficient it is from a financing perspective.

Here’s a quick guide to selecting the right mortgage for you:

• Work out how much money you have for a deposit.
• Make sure you have a good credit rating.
• Visit a mortgage advisor, a broker and an independent financial advisor to secure different offers.
• Compare the different fees that the lender charges (admin, booking, valuation).
• Read the pros and cons about interest only versus repayment mortgages.
• Read and compare the pros and cons of the different interest rates that lenders charge.
• Make sure you compare the cost of the mortgage across THE WHOLE TERM - such as over 25 years.
• Check the small print. If you sell up and pay off the mortgage within a few years, will you be charged any early redemption fees?
• Look for any 'collar rates' that might mean your mortgage interest rate goes down to a minimum amount. For example, some people who thought their mortgage would go down as much as the base rate, found that they didn’t go below 2% or 3%.
• Before you make an offer on a property, secure a 'mortgage agreement in principle' so that you are sure you can secure the funds and the seller and estate agent know you can definitely afford the property.