5 Things to know about Home Construction Loans

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Do you dream of owning a piece of land in a scenic part of the countryside? A land over which you can build your dream house to use as you want?

You are not alone in dreaming this dream. Recognising the need for people to own and build homes on their own plots, leading housing finance companies are extending home construction loans. If you are planning to build your own house soon, this article is for you.

The charm of building your own house…

The big city chaos may seem exhilarating at most times, but it has the capacity to bog you down. Fast and modern lifestyles might seem like the path to financial success, and they well may be. But over time, you begin to feel as if you are running on a treadmill that just never stops! You are now at a station in life where you want to jump off the treadmill and just relax. Living outside the city in a house that you lovingly build with your own imagination, is a good way to achieve this objective.

There are scores of people who opt to buy residential plots outside the city to build houses on. You can do the same, too. Building a house on your own plot of land gives you the liberty to design it as per your tastes and preferences, allocating space for rooms and spatial movement the way you want. You could even opt for a ready possession villa outside the city after taking a home purchase loan, but if you want to renovate it, it can cost you a lot of money.

The best option to pursue is to take a home construction loan from a leading housing finance company like Punjab National Bank Housing Finance Ltd. (PNBHFL) and build your home the way you like it.

Here’s what you need to know before you start building your home

Building a house is always easier said than done. The potential for error and all sorts of unexpected events is quite high before and during the different phases of construction. Add to this the fact that construction material and labour costs go up every year, thus adding to the overall cost of the project. There may be delays in construction if there are riots or natural calamities, or religious days or festive seasons coinciding with the project timelines. These also add to the project cost.

After getting an estimate of how much the project will cost, you can apply for a home construction loan. It is a loan product that helps you build your house on a plot of land that you own. The home construction loan can also be taken to add an extension to your house.

Consider the following points about taking a construction loan:

* The plot of land determines the construction loan process. The lending institution will institute a thorough check of the land that you wish to build on. Land records and municipal permissions will be checked before the construction loan application can move forward. This category of loan has an LTV of about 75%.

* The loan is disbursed after the construction begins. You cannot apply for the construction loan and get it disbursed at once. In some cases, lending companies insist on the the construction commencing before the loan can be disbursed. You may have to lay the foundation or build the house up to the plinth level before the loan is disbursed. This means that must begin the construction out of your own pocket.

* But there are many lenders who are glad to extend construction loans. Leading home finance companies like Punjab National Bank Housing Finance Limited (PNBHFL) have several home loans on offer, and the home construction loan is among them. You can find your loan eligibility on the PNBHFL website, so you can find out how much loan you can expect to get for the construction. The website also lists the documents you need 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.

* The loan is not disbursed in one go. The home construction loan is at variance with the home purchase loan, in that the latter is granted in a lump sum amount of money. However, the construction loan is disbursed in phases, as per different stages of construction. The installments may number two or 20, based on the project timelines that you have submitted to the housing finance company. This can become slightly problematic in case there are project delays, when you may need to pay for the construction from your own resources.

* The lender can stop disbursal for any reason. Though your construction loan application is approved and the first instalment is disbursed, the lending company monitors the various stages of construction with site visits. If the project is found stalled or indefinitely delayed, or if major alterations have been made to the submitted plans, then the lender may stop further disbursal and demand a written explanation for the same.

Karan is CA by Qualification with the rare distinction of being awarded All India Rank 22. He is also the founder of this website and is an expert in helping people save Taxes legally. He can be reached by booking an appointment for Tax Advisory Service.