Building a house from scratch is an incredibly rewarding experience compared to buying a readymade house. We have developed a guide which tells you everything you need to know about home construction loans.
What is a Home Construction Loan?
Home construction loans are home loans offered for the construction of your own house rather than purchasing a ‘ready to move’ property. The loan will be paid out in phases over each stage of the construction. It is a requirement to provide an in-depth construction plan, architect estimate, house map, and all relevant documents pertaining to the construction in order to apply for this type of loan. Once the loan is approved, a representative from the lender or third-party technicians will visit the construction site for inspection and evaluation.
Why is it a good idea to construct your own home?
Creative freedom: You can make your house your own by having complete creative freedom over the design and layout. From spiral staircases to big hallways and libraries, you can differentiate your home and have it reflect your personality.
Quality: Instead of relying on someone else’s promise, you have complete control of the quality of materials used. By working together with your contractor, you can check the sample quality of various materials and pick the best to suit your preferences.
Scalability: As you are constructing your own home, you can scale it as and when the need arises. You can build more floors, add more rooms, and expand the house as you like.
Place: Subject to availability, you have the freedom to construct your house anywhere in the country. If you desire to build your house near your workplace or in a modern locality, go ahead!
Types of Home Construction Loans
Broadly speaking, there are 2 types of home construction loans. They are:
- Self-construction loan: This type of loan can be availed by people who have already purchased a plot or some land. The loan amount will exclusively cover home construction.
- Plot purchase and house construction loan: Unlike a self-construction loan, this loan provides the funding necessary to buy a plot and construct your house. In order to avail of this loan, the borrower needs to provide a contribution.
What are the steps involved in applying for a Home Construction Loan?
There are 3 steps that need to be followed in order to apply for a home construction loan. They are:
- Fill out the application form: A borrower must fill all the details mentioned in the application form. The form can be collected directly from the lender’s office or downloaded from their website.
- Document submission: A variety of documents must be submitted in order for availing of the loan. These include income and bank statements, form 16, KYC, property documents, etc.
- Loan approval and disbursement: After all the documents have been verified, the loan is approved and disbursed accordingly based on the construction stage of the house directly to the bank account of the borrower.
Things to keep in mind when applying for a Home Construction Loan
Having a good credit score is quite important when applying for a home construction loan. If your credit score is high, you have a higher chance of getting approval quicker.
Be organised and make a file which contains all the relevant documents required to apply for a loan. You can directly submit this file to the lender without any kind of inconvenience.
It is always a good idea to calculate your eligibility by evaluating your current income state. Using an EMI calculator is a good way of doing this.
In conclusion, taking a home construction loan is a great option and could be the first step in your journey to building your dream home.