If you are planning to build your own home, availing home construction loans is the best idea. Unlike conventional home loans, construction loans are advances where you avail the funds for the sole purpose of construction on the plot of land by mortgaging the later as collateral.
Home construction loans vary from home loans although both are sanctioned as per a specific LTV. There are different types of construction loans an individual can borrow for the project at hand.
Types of Construction Loans:
1. Construction-Only Loans:
Such loans are repayable in full only after the construction process is complete. These loans are mostly availed by borrowers who construct the property with an eye to sell it after construction. It is vital for a borrower availing such a loan to have a lump sum of cash in hand to meet the repayment terms in case the property remains unsold or generates a price below the loan amount. These loans are not for individuals looking for a home construction loan for residential purposes.
2. Construction-To Permanent Loans:
Such loans are excellent options if you have a construction timeline and proper plans in place. The lender disburses funds to the borrower on request for him/her to continue and complete the construction procedure.
In the case of such loans, the borrower is required to mortgage the land where the construction is being made to avail the funds.
3. Renovation Construction Loans:
You can avail of this loan if you intend to carry out extensive renovations on an existing property. Since you know how much you need to spend on renovations, you also have an accurate estimate of how much funds you need to borrow.
Benefits Of Construction-To Permanent Loan:
• Save on Interest:
Unlike traditional home loans, you are not required to pay EMI on the total amount of loan availed. Instead, you pay interest only for the number of funds you avail as the loan and utilize it for the construction.
• Flexible Terms And Guidelines:
As opposed to traditional home loans, construction loans provide flexibility on terms and conditions. You can request the lending institution to disburse funds as per requirements. Although most lenders provide you with a maximum timeline to complete the construction process of around 4 to 5 years, it is ample time to complete the construction procedure.
• Lower Chances Of Delayed Construction:
As you always have a sum of funds available, you can fast-track construction. Delayed projects overshoot both the timeline as well as the preliminary budget. You can boost your project as and how you need with the funds always ready as a backup.
Home construction loans usually take minimal documentation and a shorter time for approval. They are thus ideal for you under any circumstance. Use a home loan EMI calculator to estimate the total amount of EMIs you will have to pay as per the rate of interest and sum of funds availed.
Before you avail of a construction loan, use a home loan eligibility calculator to determine the loan amount you are eligible for. Also, make sure you have all property and other documents handy to ease application, approval, and disbursal of funds.