It makes sense to take a home construction loan to avoid a massive drain on your savings while constructing a house. You get to pay for the construction gradually over some years
Types of construction loans
There are essentially two types of home construction loans:
- One-time closure loan and
- Two-time closure loan
A one-time closure is also called a construction-to-permanent loan. It is a single loan that covers all your construction aspects. A mortgage on the future completed building acts as the loan pledge. One-time closure is most appropriate when you have a firm handle on the entire estimate.
A two-time closure loan involves two separate loans under one approval. You get a short-term loan at a slightly higher rate for the actual construction process. Once the construction is complete, this loan is refinanced into a long-term mortgage on the completed house.
The role of credit score
To get a home construction loan on attractive terms, a high credit score is of utmost importance. Your credit score, maintained by credit rating agencies like CIBIL, is a quantification of your creditworthiness. It is the first thing about you that a potential lender will check. This is true for all lenders, whether banks or NBFCs. How do you ensure that you have a high credit score? Make sure to pay all your dues, bills, loans, and EMIs on time and in full.
Other factors that matter
To apply for a loan for home construction, the eligibility and documents should be kept in mind. Your credit score is not the only thing that matters. Your monthly income, the value of the plot, the down payment you make, and any EMIs that you are already paying, will determine your eligibility. Apart from your KYC documents, you will need to submit some other paperwork. Here are a few common documents that the lender might ask for:
- License certificate of a qualified builder
- Detailed plan of the house design
- Value appraisal of house by a qualified appraiser
- Ownership document for land
- Building permission from the municipal authorities
How to Apply for a home construction loan? Here are easy steps that you need to follow:Scan these documents and upload them along with the loan application form on the lender’s website. Once the lender approves your loan, it is time to get to work. Focus on building a beautiful house for yourself with no worries about the financing.
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