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Workers building a house. knelson20/Shutterstock

My 35-year-old son works as a contractor and is struggling to get approval for a mortgage. He’s asked for a loan to help him build his own house on land we own — is it a good idea?

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The latter can be a challenge for people who work on contract and don’t have a set salary to report. Mortgage lenders are often hesitant to take a chance on non-salaried applicants for fear of not getting repaid.

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If you have a child who’s struggling to get approved for a mortgage due to their variable income, you may be inclined to help by loaning them money to build a house on land you own. But you should know that there are pros and cons to going this route, for your child and for you.

A solution with benefits and drawbacks

In September of 2024, the median existing-home sale price rose to $404,500, according to the National Association of Realtors, marking 15 consecutive months of annual home price gains. Given that home prices only seem to be climbing, it’s easy to see the appeal of building a home from scratch.

Doing so allows you to have a say in its cost to a large degree. You can choose budget-friendly materials, and you can do as much work as you can yourself to limit what you’re paying outside contractors.

Plus, building a home from scratch means customizing it from the start. Buying an existing home often means having to sink money into renovations.

That said, building a home can come with challenges. For one thing, it can be tricky to estimate the exact cost of materials until you’re in the thick of it. It’s important to have plenty of wiggle room in a home-building budget for unplanned expenses and hiccups.

The process of building a home may also be lengthier than expected. Weather delays can put a damper on the construction process. And depending on the municipality at hand, there can be holdups in issuing permits and performing inspections.

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Make sure to protect yourself financially

If you’re going to lend your child money to build a home on land you own, it’s important to consult an attorney to put the right legal documents in place. Specifically, you should enter into a contract that outlines the terms of the loan, including the amount being borrowed, the interest rate being charged (if applicable), and the time frame for repayment.

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Your contract should also spell out exactly what the funds you’re lending your child need to be used for. You don’t want to loan them $150,000 to buy building materials only to have them spend a portion of that sum on a new car and a vacation.

And if you’re thinking, “It doesn’t matter what my child does with the money as long as I’m repaid,” consider this: If your child blows the money you lend them and never completes their house, they’re apt to have an even harder time repaying you. And you won’t have an asset to go after to get repaid, either.

As part of the legal legwork, talk to an attorney about whether you have a right to put a lien on the house in question. A lien may give you added protection by preventing your child from selling the land – or the home, once completed – until they’ve repaid their loan.

Finally, consider the risks you’re taking on in lending out that money. If your child’s income is variable, they may not be able to stick to the repayment plan you outline. If the cost of building their home comes in higher than expected, they, and you, may run out of funds to complete it. Make sure to think things through carefully so you and your child don’t wind up in a tough spot.

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Maurie Backman Freelance Writer

Maurie Backman has been writing professionally for well over a decade. Since becoming a full-time writer, she's produced thousands of articles on topics ranging from Social Security to investing to real estate.

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