Applying for a home construction loan? Some important tips

An array of housing loans are available for real estate consumers. You can avail a loan to purchase an already constructed, under construction or even under project launch stage house, or apply for a home loan to construct a house according to your requirements. Following are some of the tips to note while applying for a loan for home construction:

Eligibility and papers: If you are planning to avail a home construction loan, it is advisable to first get yourself pre-qualified for it. This way, you can get some of the best home loan deals. Also, do all the paperwork required to pre-qualify for a home construction loan, including the details of the construction project, references, proof of employment, bank statements, and recent credit report.

Sanctioning: By getting a home construction loan sanctioned, don’t think if you are qualified for getting an X amount of loan disbursed, the same will be issued to you, when you ultimately request for it. The actual loan amount eventually issued to you may vary as lenders decide the final amount only after a thorough verification of all the records you provide them. It is advisable to arrive at a rough estimate of the cost of home construction and file an application for the required amount with a bank or housing finance company, stating the estimated construction loan budget.

Disbursement: Very few banks can offer you a loan upfront, before you start building your new home. If the plot of land on which you wish to construct the house has been bought within a year of construction, ideally, it is included as a component for calculating the total price of your house. However, in cases where the land has been purchased more than a year before the construction begins, the cost of land does not form part of the total cost of your house, while disbursing a home construction loan. Every applicant should make a rough estimate of the cost to be incurred for the construction of the house to include it in the amount of loan requested.

Instalments: It is not necessary that you may get the loan amount disbursed at one go. You may receive the loan as lump sum or in some cases it is disbursed in parts (instalments) keeping in mind the progress of the construction. You should remember the factors like site of construction, design of the house and financing cost of the home building.

Banks offering home construction loans

If you do proper research and legal work, you can obtain a home construction loan from the best banks in the country.

• Some of the major banks that provide home construction loans include State Bank of India, United Bank of India, Canara Bank, Bank of Baroda, HDFC Bank Ltd, ICICI Bank Ltd, Mahindra Finance, UCO Bank, etc.
• If you are wondering whether you should lock in your construction loan before you start building or let the interest rate float, one school of thought suggests if the rates are heading upward, lock. If the rates are on downward spiral, go for floating rate. However, if it is a long term loan with several years in tenure, it should not matter as floating rates can both rise and fall in that span of time.
• If you have no previous experience building a home, it would be best to hire a builder/supervisor with a good reputation and track record, to supervise the building of your new home. The builder/supervisor may help you with the cost breakdown and manage the subcontracting on an as needed basis.
• The estimated cost breakdown is one of the most important forms in the construction loan package. This is the breakdown of each particular cost of construction of the home, such as the foundation, lumber, framing, plumbing, heating, electrical, painting, and builder's profit, etc.

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