Building a dream home is quite a snag, but financial responsibilities require caution and proper planning. A vital step or prerequisite in this direction is getting a loan for construction of house. In this post, we will explain the key features of this loan and give you some tips regarding how to get your loan sanctioned.

Understanding the Loan for House Construction

A house construction loan is one particular loan that addresses the need to build a new home. Unlike the regular home loan meant for buying an existing property, this loan is issued in installments continuously. This is issued depending on the completion of certain critical stages during construction.

Features of the Loan

• Flexible Disbursement: The loan is disbursed in tranches, which duly correspond to the different stages of construction. The flexibility offered here is that funds are available when required, thus easing the burden off the borrower’s shoulders.
• Interest Rates: The rates of interest associated with a house construction loan may vary from one lender to another. One must ensure they have shopped around for the best deal.
• Loan tenure: The tenure for such loans usually ranges from 10 to 30 years, enabling the borrowers to comfortably repay the loan amount over a long period.

How to Apply for a Home Loan

Before applying, it would be apt to know that a loan for the construction of house differs from a home loan. In simpler terms, while the former is used to construct a house, the latter is mainly used to purchase an existing property.

Steps to Apply for a Home Loan

You need to be eligible to apply for home loan. Lenders sanction the amount, considering your income, credit score, and repayment capacity.

Choose the appropriate lender. Interest rates, processing fees, and customer service vary from lender to lender, so it’s important to choose the best option.

Prepare the Documentation: Collect all the required documents, including proof of identification, address proof, income proof, and the construction plan. A well-defined plan will increase the possibility of your loan approval.

Submission of Application: After preparing all the documents, you can submit your loan application to the lender. Make sure that the information you provide is correct to avoid a possible delay in the approval process.

Loan Sanction and Disbursement: The lender will review the applicant’s eligibility and the construction plan and sanction the loan amount indicated accordingly. It will then disburse money in tranches as the construction progresses.

Key Factors to Consider During Application

• Loan Amount: You should borrow an amount that you can conveniently repay. Overborrowing will strain you financially, while underborrowing may not complete your construction.
• Interest Rate: While going to apply for home loan, you must have a competitive interest rate. A slight variation in the interest rate drastically alters your repayment over the tenure of the loan.
• Repayment Plan: Opt for a repayment plan that suits your financial condition. Most lenders will give flexible repayment options to help you service your loan as early as possible. These could include prepayment facilities.
• Lender’s Reputation: A lender’s reputation is a relevant consideration when a home loan application is being considered. The lender must be genuine and good at servicing his customers.

Benefits of Loan for House Construction

• Customized Funding: This loan is tailored to suit house construction needs, and funds are released in tranches at different project stages.
• Tax Benefits: Like all other loans for houses, a house construction loan also provides you with certain benefits regarding taxes according to the Income Tax Act and, therefore, aids you in saving more for the longer term.
• Ownership of a New Home: By constructing your house, you get an opportunity to design it according to your taste to suit all your requirements and your lifestyle.

Conclusion

Among the significant things one could ever do, taking a loan for construction of house is the dream of converting this home into a reality. If you follow the proper procedure and consider all the vital considerations, you can apply effectively for a home loan and start the construction of your dream home. Compare the different available lenders, choose the right amount to be lent to you, and make sure the repayment plan will be right on track so you enjoy a hassle-free experience.