Home Construction Loans: Complete Guide - Plot, Disbursement, Extension, Benefits And More

"Home construction loans are taken by customers who already own a plot and need some financial aid in constructing their house on the said plot."

Check the list of things you need to know for home construction loans.

Home Construction Loans: Constructing a house from the ground up can provide an excellent opportunity to personalise your new space. However, construction, like home ownership, can be an expensive endeavour. If you plan to build your own home instead of buying a new one, the experience will undoubtedly be more wonderful and enjoyable. However, this would necessitate applying for a home construction loan, which has its own set of requirements. Talking about Home Construction Loans, Nidhi Aggarwal, Founder, SpaceMantra, says, "Fortunately, construction loans provide the funds required to purchase land as well as pay for the materials and labour involved in building a new home."

What is a home construction loan?

"Home construction loans are taken by customers who already own a plot and need some financial aid in constructing their house on the said plot. It is of short-term with higher-interest loan and is used to finance the construction of a residential property. Construction loans are mostly for one year. During this time, the property must be built and a certificate of occupancy should be generated," Nidhi Aggarwal explained.

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List of things you need to know for home construction loans

Plot of land

"The construction loan process is determined by the plot of land. The lending institution will conduct a thorough inspection of the land on which you intend to build. Before the construction loan application can be processed, land records and municipal permissions will be checked," she suggested.

Loan Disbursement

"After the construction begins, the loan is disbursed. You cannot apply for a construction loan and have it disbursed immediately. In some cases, lending institutions require that construction begin before the loan can be disbursed. Before the loan is disbursed, you may be required to lay the foundation or build the house up to the plinth level. This means you'll have to fund the construction yourself," she added.

Extension of loan

"Through leading home finance companies you can find out how much loan you can expect to get for the construction. The list of documents should be kept ready to submit with the application. Do note that you must submit the project estimate (drawn up by an empanelled architect or structural/civil engineer) and land record copies," she opined.

Loan Disbursement

"The home construction loan differs from the home purchase loan in that the latter is given in a lump sum of money. The construction loan, on the other hand, is disbursed in stages based on the stage of construction. The instalments could be two or twenty, depending on the project timelines you submitted to the housing finance company. This can be a little tricky if the project is delayed and you have to pay for the construction with your own money. The lender has the authority to halt disbursement for any reason. Even after your construction loan application has been approved and the first instalment has been disbursed, the lending company will conduct site visits to monitor the various stages of construction. If the project is found to be stalled or indefinitely delayed, or if major changes have been made to the submitted plans, the lender may halt further disbursement and demand a written explanation," she further explained.

Benefits of home construction loans

"These loans enable you to build the home of your dreams. While there are many beautiful homes available, you may not find the ideal home in the ideal location. So, rather than settling for something you don't like, a home construction loan allows you to design your dream home, whether it's a mansion for a large family or a cosy bachelor pad. They may also make it easier to generate a rental income stream. With long-term rental websites such as AirBnB becoming more popular, constructing a bedroom with a private entrance or a small cottage on your property could provide you with a great source of income to help pay off your mortgage later," she concluded.

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