Things To Prepare for When Building Your Dream Home

1. Things To Prepare for When Building Your Dream Home It is a dream to find a piece of land and build the house of your fantasies for your family. The planning and the designing are fascinating processes. But the more challenging part is the logistics of financing this project. Home construction loans can make this process much less stressful. How Is A Home Construction Loan Different From A Home Loan? Tenure of the Loan: Most lenders have offered long-term home loans mainly used to buy an existing property. These can typically stretch to about 30 years with smaller monthly payments. A construction loan is different. These are offered for shorter terms to aid the payment for construction. The EMI for this is relatively higher than what can be expected in a regular home loan. Disbursement of Loan Amount: A home loan is also disbursed as a whole, all at the same time. A home loan for self- construction, however, has a different procedure of disbursement. The entire amount is first divided into smaller instalments. The size of these depends entirely on the total amount of the loan, how construction is advancing and the loan to value (LVT) ratio. The debtor will receive these instalments periodically as and when construction progresses. It is also essential to understand that the lenders closely monitor the progress in construction before releasing the instalments. Once the designated target for the previous instalment is reached, the consequent instalment will be released. So, the idea is the loan instalments will come in at the rate at which the construction is completed. Who is Eligible to Apply? Unsurprisingly, a home loan for self-construction requires the borrower to fulfil specific eligibility criteria. The obvious ones are a good credit score and meeting net income requirements. A good estimation of this is a credit score above 750 with a minimum income of twenty-five thousand rupees per month. Only people between the age of eighteen and sixty- five can be authorised for this type of loan. Some lenders increase the lower limit to twenty- four years as well. What Documentation is Essential? Beyond the KYC documents and proof of identity and residence, you will need to prove land ownership. The lenders will also ask for NOC from appropriate authorities along with the sanctioned and approved blueprints and construction plans.

2. You will be required to present the construction plan, the blueprint and the layout to the relevant local authority (Municipality or gram panchayat), who will approve the plan. The local authorities will also issue a plot authorisation document which is essential for getting the loan approved. The plot in question can be a freehold plot or one that has been assigned by development authorities like DDA, AUDA etc. If the lease is of a reasonable length of time, lenders also provide these loans on leased land. For all these options, a non-encumbrance-certificate relevant to the plot is mandatory. The lenders also ask for an estimated cost of construction certified by a civil engineer or architect. Margin Money Much like the case of a regular long-tenured home loan, the borrower bridges the difference in the cost of the home and the sanctioned loan amount. This amount is dependent on the size of the loan amount. It is not any different in the case of this type of loan for building a house. The borrower will have to pay what is known as margin money. If the plot of land is recently purchased, the price is calculated within the contribution by the borrower. However, if you have inherited the land or the land has been gifted, this will not be the case. Similarly, if the land was purchased a long time ago, the price of the land is not computed in the contribution. Conclusion Building a house is a complex and arduous process that involves making many decisions and coordinating with many people. While the process is long, the result, if done correctly, is immensely gratifying. Choosing the correct financial instrument to suit your specific need is key to completing this process successfully. It is always a wise decision to do your due diligence before committing to something financially.