Everyone dreams of his or her own house. Then, the difference between a home loan and a home construction loan should be clear in understanding. Generally, home loans are for purchasing properties, and construction loans cater specifically to those who own land and wish to build their homes. You can also avail yourself of a loan for construction of house due to damage caused by natural elements or if you want to extend the house. This blog explains the out-and-about of the loan for construction of house, explaining how to apply for home loan, interest rates, and the myriad benefits.

What is a Home Construction Loan?

A home construction loan is a type of lending method you can avail of when your property is under construction. Unlike a home loan, which is used for purchasing an existing home, a loan for construction of house is designed to cover the costs associated with constructing a new home. The loan is typically disbursed in stages or "draws" by the lender based on the progress of the construction project. These stages may include the purchase of land, site preparation, foundation construction, framing, and completion of various phases until the completion of the home. They release funds to cover the incurred expenses after the completion of each stage.

Why Choose a Home Construction Loan?

You can develop your home in any design you want with a home construction loan. You have the freedom until you take a loan to buy a property. A home construction loan is issued as per the development of the home construction . You are free from paying the whole amount of interest at starting from the first day. For future improvements to your newly constructed home, you can easily take a home improvement loan which will make your construction ideas easier and also you can apply for a house renovation loan. Most banks provide balance transfer options for construction loans. You can transfer the outstanding balance of the loans to another bank if you discover the current loan is higher than the market rate.

Features of Home Construction Loan

Interest Rate: The interest rate for a loan for construction of house can vary depending on variables such as government policies, market conditions, and creditworthiness.

Cost-effective: One of the best advantages of a home construction loan is that it can avail efficient cost management You can control the funds and can limit the risk of cost overruns because the disbursements are tied to the construction process.

Loan Tenure: The loan tenure refers to the given duration to the borrower to repay the borrowed amount. It is the length of time that the borrower has to make payments regularly towards the loan until it is fully repaid.

Eligibility Criteria for Availing of Home Construction Loan: The borrowers must fulfil certain eligibility criteria to apply for home loan. You should be of Indian nationality, i.e., Indian Resident or Non-Resident Indian, and to get a loan for construction of house, your age should be between 18-70.

Credit Score: A credit score is a numerical portrayal of the credit history of a person and creditworthiness. The lender must maintain a credit score of at least 620 ( the higher, the better). Credit scores range from 300 to 900, a higher credit score indicates better creditworthiness.

Conclusion

In conclusion, a loan for construction of house is a valuable financial option when embarking on the journey of constructing your dream home. In addition to providing the necessary credit to build our home, the loan also offers potential savings through various tax benefits. The process to apply for home loan requires research, preparation, and responsible financial management.