Here’s All You Need to Know About Home Construction Loans

Home Loans have become significantly popular amongst prospective homeowners who are looking to buy their own home but do not have enough money to make a purchase against complete payment due to the high prices of residential properties across India. Home Loans enable you to realise your dream of purchasing your own home. As Home Loans are secured loans, the property you purchase with the help of a Home Loan is hypothecated with the bank and you are required to make the repayments towards the loan amount for the entire tenure that can extend up to 30 years. At present, the rate of interest against Home Loans starts at 8.35% p.a.

Due to the increasing demand for Home Loan amongst the younger generation looking to purchase their own house in new cities, many lenders have started offering the option of Home Loan for you at Home through their online lending platforms. In order to avail a Home Loan, you need not visit any branch or office of the respective financial institution or you can apply online through MyMoneyMantra. You just need to log on to our website and fill in your application form with some necessary details. Thereafter, our representatives will get in touch with you and help you complete all the formalities from the comfort of your home, essentially bringing the loan to your doorstep. Getting a Home Loan approved is just one part of the whole process of owning a home, there are various other expenses associated with a Home.

Home Construction Expenses

After you have purchased a residential property with the help of a Home Loan, there comes the next phase, getting the home constructed/modified/renovated according to your preferences. This may require you to make significant expenses to get your home into the shape you desire.

This could include construction of new rooms, painting the entire house, relaying the flooring, redecorating the rooms, upgrading the kitchen and many other essential projects that must be undertaken to get the house to become your home. All these changes require significant expenses and after having recently undergone the considerable expenses involved in purchasing the property, but the chances are that your personal finances would be virtually exhausted. So, what can you do in such a scenario? Your best option is to go for a Home Construction Loan.

What are Home Construction Loans?

Home Construction Loans are secured loans that are extended by various lenders to help you cope with the expenditure involved in the construction or renovation of your new home. The loan is only given for the period when the construction is going on and is meant to be used for home construction purpose only. You need to submit the invoices and other documents with the lender from time to time, as they need to ensure that the amount is being utilised for the said purpose only.

The loan amount approved against your application is disbursed in stages, according to the progress of the construction. Initially, the lender will release a higher amount as the expenses at the beginning are usually more,and thereafter amounts would be disbursed in instalments as per the stages of construction. Lenders require completion certificate from you after completion of every stage of construction and only after that would the next instalment be disbursed. The rate of interest on home construction loans are usually higher as the security is not yet tangible. The repayment tenure can extend up to 15 years and as such the loan is subject to floating interest rates.

Various Factors Affecting Home Construction Loans

While extending home construction loans, the lenders are extremely cautious as they are giving out a loan against something that is not yet there. As such most lenders follow a stringent eligibility criterion to make sure that the loan amount would not be misappropriated. Following are some essential factors that lenders need to be satisfied with while processing an application for Home Construction Loans:

Developer

The contractor or developer appointed for the construction work must be registered with statutory authorities and should be qualified to take on the project.

Construction Plan

Complete construction plan is to be submitted to the lender along with the construction materials to be used and the expected dates of completion of each stage of the construction.

Margin Money

Your lender would require you to furnish margin money from your side with each instalment to be disbursed. So, you have to arrange for the margin money before asking the lender to disburse the next instalment.

The Progress of Construction

The lender might conduct independent appraisal from a qualified consultant to check the real progress of construction as well as identify any deviations from the construction plan.

Credit Score

You must have a good credit score and a long credit history to be eligible for a home construction loan. A home construction loan offers you an excellent opportunity to construct your house exactly the way you want without worrying about making the payment from your own pocket.