One of the new “milestones” in life for people is building that dream house. But that takes a lot of money. The good news is home construction loans which provides that necessary financial support that will make your dreams come to fruition.

You’ll construct a new home on your piece of property, or add a wing to your current dwelling. With control of all the nuts and bolts of financing a home construction loan it will be all the more comfortable, attainable.

What Are Home Construction Loans?

Home construction loans or that unique financing that is used to build a new house or any other residential structure for that matter. These loans unlike the usual home loans are disbursed in stages corresponding to the stages of construction work of the house. It’s a loan that releases an amount equal to the completion of each stage of work.

Other home construction loans can also be combined with land loans, which are actually called land and construction loans, in which the loan would cover land with actual construction on it. These loans work much different than a conventional mortgage but at the same time there are certain stipulations.

How Does a Home Construction Loan Work?

Securing a home loan for house construction involves stages of a process, and the loan is issued in installments based on how well your construction project has progressed:

Approval of the Initial Loan: Upon approval of your loan, you do not take it all at one time. Instead, your lender will withdraw monies in portions based on how your construction is progressing.

Stage-wise Disbursement: The loan is disbursed stage wise-for foundation, slab work, walls, roofing, and finishing.

Monitoring: Banks keep continuous track of the construction process, possibly through site visits, before releasing further funds.

Types of Home Construction Loans

There are a number of choices you have regarding financing your home’s construction.

• Standalone Construction Loans: In this type of loan, the loan will solely cover your construction costs. Upon completing the construction, you have to take another mortgage to pay off your construction loan.

• Construction-to-Permanent Loans: These loans convert into a mortgage after the completion of construction. In this case, you don’t have to apply for two different loans.

• Land and Construction Loans: If you’re purchasing the land, then you may want a land and construction loan that covers both the price of the land and covers the cost of construction.

Home Construction Loan Interest Rates

These are why home construction loan interest rate is frequently more than that of the house loan interest rates of a bank. The range will be from 6.5% to 12% varying upon lender, amount, etc. credit score, repayment capacity, etc.

Rates with such construction loan can also be fluctuating according to whether it is taken with a fixed or floating interest rate. In the case of fixed interest, the rates do not change and in the case of floating, they alter according to the changing market conditions.

Documents Required for Home Construction Loans

While taking a loan for constructing a home, there are several documents that you will need to submit to the lender.

• Identity proof (Aadhar card, passport, etc.)
• Proof of income, say salary slips, IT return
• Bank statements
• Local authorities’ approvals for building plans
• Cost estimates of construction from a contractor or architect
• Land title deed, if applicable
• Ownership proof for the plot

These are some of the documents that are put into consideration for acceptance when trying to obtain home construction loans. Some may demand more through their policies.

How to Apply for Home Construction Loan

The application procedure for construction financing is pretty straightforward, though different from one lender to the other. Here’s the general process:

1. Check your Eligibility: First, check whether you fulfill all the eligibility criteria set by the lender. Sometimes, a lender may ask for age, income, and credit score eligibility.
2. Choose a Lender: Compare construction loan financing options, interest rates, and repayment terms among various lenders before selecting one.
3. Submit Application and Documents: Collect your documents and submit them with the loan application.
4. Loan Processing and Approval: The lender will scrutinize your documents and the project plan before accepting them for approval.
5. Loan Disbursement: The loan will be disbursed in stages depending on the level of completion of construction phases.

The benefits of home construction loans

There are a few benefits of taking a construction mortgage or a home construction loan, such as the following:

• This type of loan has customized disbursement as funds are disbursed against the actual progression of the construction, thus relieving some amount of financial pressure.
• Some interest payment options are available, for example, paying interest until construction is complete, then adding in the principal.
• With residential construction loans, there is always the flexibility to tailor the loan to your requirements.

Construction Loan Rates and EMIs

Another frequent query is when the EMI for an under-construction property begins on the home loan. In most cases, this commences when the loan is fully disbursed. Most of the lenders would allow interest-only repayments until the construction is complete. 

That would ease off a few tensions in the pocket. Infra Ratepersqft helps you find the best rates for your construction project besides guiding you through the entire home construction loan process. It is known for professional services and competitive rates.

Conclusion

The difference between a very stressful construction process or a very smooth one may lie in getting the right loan for home construction. Getting the best home construction loan will surely require knowledge of various alternatives, like land and construction loans, and tracking some important details: construction loan rates and documents ensure a financially secure journey through home-building.

Don’t forget to explore services provided by Infra Ratepersqft so you get the best advice and assistance for your construction financing needs.

Frequently Asked Questions

1. What is a home construction loan? 

A home construction loan is a type of loan that helps you finance the construction of your house. It’s a construction loan and the money is given out in installments as the construction progresses.

2. When does EMI start for under-construction properties? 

Typically, EMIs start once the full loan is disbursed. But some lenders will let you pay just the interest during construction.

3. What documents are required for a home construction loan? 

Some important papers are copies of id, pay checks, bank statements, building plan approval notice, and a construction cost estimate. Each lender may have additional requirements.