Tips to Avail Construction Loan for Building a Home

The construction of a residential property costs too much and the financial funding for the same is bit different to avail in comparison to the home loan sanction. But, the availability of multiple loans are enough to lit up the hope for sanction of financial funding for the construction of residential property. So, opt for construction loan rather than gazing at the home loan section. This loan may be new to some of the readers but this funding is best suitable in case you are looking for financial funding to build up a home. The below listed things will help you know better about the Construction loan as it help in proper structuring of a living abode.

Construction loan

Img : HardMoneyMan

  1. How Construction Loan is Different from Home Loan?

A Construction loan is financial assistance availed by you to construct a home on the land/plot owned by you. Whereas the home loan is sanctioned by the bank/financial institution to purchase a home built on other person’s land or to buy an under construction property which is being built on the land acquired by any other person such as a developer/realtor. The Construction loan sanction depends on various factors like details of land, purchase date of the land, Person from whom the land is purchased etc.

  1. Eligibility to Apply for Construction Loan

Any person owning land/plot in his/her name and is willing to build a home on the same is eligible to apply for the construction loan. Also, the person is required to mention if he/she is hiring a contractor for building of the same or is willing to do on his/her own.

  1. Essential Documents for Application of Construction Loan
  • KYC – Know Your Customer

  • Income Proof

  • Proof of Land Title Ownership

  • Allotment Letter from the Authority from whom you purchased land/plot like DDA, CIDCO

  • Non-Encumbrance Certificate

  • Plan of the Proposed House approved by Municipal Corporation

  • Layout of the Proposed house approved by Municipal Corporation

  • Construction Cost likely to be incurred for building of the proposed home which should be approved by a civil engineer or an architect.

  1. Contribution in Margin Money

The applicant here also needs to pay some percentage of money in order to construct his/her dream home. This partial contribution of the applicant is calculated while keeping various factors in mind such as, the amount of construction loan the applicant requested for and value of the cost of land/plot owned by the applicant. In case the applicant inherits this land/plot from the parents or family then the loan lender evaluate the property value as per the current market rate before approving the loan.

  1. Disbursal of Construction Loan:

The approved construction loan is disbursed partially as the home loan is released for the purchase of an under-construction residential property from any developer/realtor.

  • Firstly, the approved loan amount will be disbursed by the lender only after the applicant declares his/her contribution towards the construction of the proposed home. Also, the applicant is required to produce proof for the contribution made by him/her.

  • Secondly, it is essential to submit the actual site image for the timely disbursal of loan. This submission of images takes place after completion of every stage which also marks the beginning of a new construction stage. Don’t forget to take approval of these photographs from the architect/engineer before submitting it to the lender alias bank/financial institution. .

  • The bank/financial institution is likely to appoint a separate authority for verification of the documents produced by you in order to get the Construction loan sanctioned.

Carry out the research and find the bank/financial institution offering lowest interest rate on the construction loan and also look for the best suitable payback time before finalizing the lender for availing the loan. This is important as the high rate of interest means payment of hefty amount as loan payback EMI. Consult a couple of banks as not all banks/financial institutions offer the Construction loan.