Constructing your dream home can be exciting as well as financially exhausting. Since it is hefty on the financial side, affording the expenses may not be possible by all. Availing financial assistance on a project that hasn’t been embarked yet is difficult as most lenders would consider it risky. However, to assist borrowers in such circumstances, short term loans called as construction loans have been formulated.
Devised below is a strategic approach on construction loans and pointers that every applicant should heed to before availing one.
What are home construction loans?
A home construction loan is a short term credit granted to applicants in assisting their home or building project. The funds from this loan can be utilized in funding the construction costs until the builder or applicant obtains long term funding. Since the nature of the loan is risky, the interest rates on home construction loans are generally higher than loans against property.
However, some flexible customer-centric financial platforms such as PNB Housing Finance provide robust service delivery models which ensure fast and easy approval of loans. They also offer various repayment options that the needs of the applicant.
Qualifying pointers for Home construction loans
Applicants should always check home loan eligibility criteria before applying, as it changes between lenders. Since the nature of the loan is risky, financial platforms often impose stringent criteria for approval. Listed below are some general pointers for qualifying for a home construction loan.
- Construction project integration with a qualified builder
An established builder often holds a reputation for authenticity. The risk factor involved is thus reduced. Hence applicants posing as self contractors or builders might find it difficult to obtain loans because of the uncertainty that prevails.
- Detailed specifications to be submitted
Every lender necessitates on the complete details of the project, including ceiling heights to the insulation type used.
- Credit score
The applicant should have a good credit score of :
- 700 and above if salaried
- 750 and above if self-employed
- Age bar
The loan is sanctioned only to applicants who are a minimum of 18 years of age and a maximum of 65 years old.
Although the above criteria are satisfied by the applicant, the loan is sanctioned by the lender only after the following steps:
- The lender’s appraiser calculates home value
Every lender has a trusted appraiser who values the construction specification submitted by the applicant. It is then compared with similar buildings in similar environments and localities. The appraised value is then decided from the calculated and compared costs.
- Depositing a down payment
Applicants must deposit down payment. This is to ensure applicants are earnest on their projects, so the risk ratio is narrowed.
Through construction loans, everyone can build their dream homes without financial worries. With a good credit score, along with the necessary document submission, home construction loans are an aid to anyone looking toward their house construction project.
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