Building your house from scratch sounds like a challenge, yes, but also like freedom: the freedom to decide every detail, from the layout to the materials. However, financially, it's not a path you can take blindly. This is where a mortgage for building a house comes in, a solution offered by banks to those who decide to build their home on their own land, customized and step by step.
This type of financing doesn't work the same way as a typical mortgage for buying a ready-made house. It has its own specific logic, and it's important to understand it well before starting construction.
Mortgage to build a house: What exactly does it involve?
A mortgage for building a house—also called a self-build mortgage—is designed to finance new construction on your own land. Instead of receiving all the money upfront, the bank releases it in installments as construction progresses and each phase is certified as completed successfully.
This type of loan is suitable for both primary residences and second homes, although the conditions may vary depending on the intended use and the applicant's profile.
This is how this type of mortgage works
The dynamics of this loan adapt to the pace of construction. It's nothing like the standard mortgage model where you buy and start paying everything at once. Here, the process unfolds in stages:
- Initial contribution from the promoter
The bank doesn't provide all the funding. It will require you to cover between 20% and 40% of the project costs. This initial capital must come from your savings. - Phased disbursements
As the construction progresses (foundations, structure, enclosures, finishes, etc.), the bank releases funds. But it doesn't do so automatically: it needs technical reports that verify the progress. - Waiting period
While the property is being built, you'll typically only pay interest on the amount already paid. Full payments are due once the property is completed. - Conversion to standard mortgage
With the construction completed and the occupancy permit granted, the loan then operates as a conventional mortgage.
What will they ask of you to grant it?
Taking out a mortgage to build your own house involves preparing a lot of paperwork and meeting some stricter requirements than if you were buying a ready-made home:
- The land must be urban or developable and legally registered.
- You need a certified project, drafted by an architect
- You must have a building permit approved by the city council
- The implementation budget must be detailed
- You will also need to demonstrate job stability and ability to pay.
- And have your own funds to cover the part that the bank doesn't finance.
In islands like the Balearic Islands, where land is scarce and prices are high, all of this becomes even more demanding, especially when we talk about single-family homes.
How much funding is available?
Generally, banks finance between 70% and 80% of the lower of the construction budget and the completed property value. For primary residences, repayment terms can reach up to 30 years, although this always depends on your age and financial profile.
Not all expenses will be covered, though. Items such as fees, technical studies, or utility connections may not be covered by the financing, so it's a good idea to have a contingency fund.
Advantages over buying something ready-made
Although it involves more management and commitment, this type of mortgage has some strong points:
- Design your home to your specifications, from the very beginning.
- You control the quality of what is installed
- Payments are adjusted to the actual progress of the project
- In the long run, it can be cheaper than buying new construction.
- And you can plan an energy-efficient house
It is also easier to meet current sustainability standards when you start from scratch.
Details to review before taking the step
Before signing anything, consider these possible scenarios:
- That the original budget falls short
- That the work suffers delays
- That costs appear that were not considered
- Or that there is a lack of coordination between the various agents involved
Good planning and a solid professional team are key to preventing the process from becoming a source of stress.
Is it worth building instead of buying?
Not everyone feels comfortable making constant decisions or managing a construction project. But if the idea of living in a house built to your liking appeals to you, and you have the time and willingness to get involved, building can be a very attractive option.
Why choosing the right construction company is so important
Having a construction company in Mallorca that is well-versed in both the technical aspects and the financial processes is a significant advantage. An experienced company saves you trouble, reduces time, and keeps the budget under control.
What documents does the bank usually ask for?
When you begin the process, be prepared to submit documents like these:
- Land deed
- Complete technical project
- Contract with the construction company
- Implementation schedule
- Work certifications signed by professionals
Having all of this well organized greatly speeds up the loan approval process.
Armalutx Constructions: your trusted team for building in Mallorca
If you're already considering building in the Balearic Islands, it's important to surround yourself with people who know what they're doing, both on-site and with banking. At Construcciones Armalutx, as a construction company in Mallorca, we'll guide you from the initial plans to the final handover. We take care of coordinating architects, engineers, and banks, so you don't have to worry about anything but enjoying the process.
Are you ready to start the journey towards the home you have in mind? Write to us and we'll talk about it.
