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Home Construction Loans – Breaking Down the Basics

By Finserv MARKETS - Jul 26,2019
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Home Construction Loans – Breaking Down the Basics

Want to know how banking institutes disburse home construction loans compared to standard home loans? This article explains just that.

Here, we will broadly look into the basics of home construction loan.

Building a Custom Home with Construction Loan

Do you have access to the right plot and perfect location? Well, in that case, you might as well self-build your own home instead of buying a pre-constructed one.

Now, this task may sound all exciting and adventurous to you. But in reality, constructing a house can be overwhelming and a strenuous process altogether. It requires you to invest a lot of time, efforts and money.

To simplify the process, many banking institutes offer financial assistance in the form of home construction loans. You can apply for financing new home construction if you have a plot of land – wherein you can build your own home, build property and give it on rent or sell it for a profit.

Wondering where can you get a construction loan? We are here to help you!

Home Construction Loan Requirements

Much like home loan, the basic eligibility criteria are simple and the documentation list is as usually similar. You need to provide the proof of your income, identity, and employment to your lender. This will further help your lender to assess your loan application.

When it comes to best home construction loan, lenders carefully monitor the loan application that includes the details of your property and project estimates. Lenders and other financial institutes are strict with the underwriting and documentation when it comes to approving home construction loans.

Things to Remember About Home Construction Loan

Due to the inherent nature of this home loan product, the sanctioning and disbursement process is a bit different from that of other home loans. This is mainly because of the higher default risks associated with this type of home loan product. As a matter of fact, the risk factors tend to be high for yet-to-be constructed homes than the pre-constructed or under-construction plans.

Here are a few things that you need to remember about a home construction loan.

1: Loan Amount Disbursement

Generally, the sanctioned amount of an approved loan application is credited once the initial down payment is made. Most lenders usually demand a down payment amount of up to 20% of the construction property/cost. However, this percentage is different for different lenders.

When it comes to standard home loans (for pre-constructed or under-constructed properties), the loan amount is credited almost instantly. But in case of the construction loan, the approved amount is always released in the form of installments as per the requirements of the borrower.

The installment amount is dependent on the progress of the construction, size of the loan and the loan to value ratio (LTV).

2: Slow Progress Would Affect Disbursement

The lenders decide the disbursement of loan depending on the phases of the construction These phases are foundation level, lintel level, concrete work and then the final level. The loan amount disbursement also depends on the speed of the construction.

It is however noteworthy that your lender has the complete authority of halting the payments, in case the construction activity is delayed or left hanging.

3: You Cannot Alter the Construction Plan

Remember that you cannot simply make changes to the construction plan. Lenders usually have a team of professionals that investigate the progress of work. If they happen to notice any alternation in the actual plan submitted during the loan application process, it might force your lender to halt the disbursement.

4: Pre-EMI Interest Payment

When applying for home construction loans, you might be required to pay pre-EMI during the construction period of your property. In other words, this amount is nothing but the applicable home construction loan interest rates amount on the loan amount disbursed and excludes the actual EMI amount and loan tenure. Once your property is built, the final loan amount is released and the actual loan tenure begins.

Explore Home Loan Options – Bajaj Finserv Home Loan from Finserv MARKETS

Looking for a home construction loan? Get in touch with us at Finserv Markets and benefit from features like convenient repayment tenure, instant approval, faster loan disbursement, tax benefits and get your loan amount disbursed quickly. Apply for Bajaj Finserv Home Loan at Finserv MARKETS to avail additional benefits under PMAY scheme.

Finserv MARKETS, from the house of Bajaj Finserv is an exclusive online supermarket for all your personal and financial needs. Loans, Insurance, Investment and exclusive EMI store, all under one roof- anytime, anywhere!

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Bajaj Finserv Direct Limited ("BFDL"), erstwhile Bajaj Financial Holdings Limited is a registered corporate agent of Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited under the IRDAI composite registration number CA0551 valid till 10-Apr-2021. BFDL also renders services to Bajaj Finance Limited (‘BFL’) and Bajaj Housing Finance Limited (‘BHFL’) (referred hereinafter as ‘Lending Partner’) in sourcing of customers, providing preliminary credit support activities, fulfilment services and post-acquisition customer services related to lending business. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522