Build That Dream House with a Home Construction Loan - Loan Trivia


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Thursday 29 November 2018

Build That Dream House with a Home Construction Loan

As the very name suggests, a home construction loan can be used not just for purchasing ready-to-move-in flats but one’s own home. There are a number of lenders including NBFCs (Non-Banking Financial Companies) who offer these loans. Here are thus some of the features of a home construction loan that you may not know about -

  • Home construction loans have a higher interest rate and shorter repayment period when compared to home loans. Both of these parameters will vary from one lender to the other
  • The loan money which is borrowed as home construction loan is not directly handed over to the borrower. The money is instead paid to the contractor in installments depending on the progress of the project
  • The more the work progresses, the more money is paid and by the time the construction is completed, the borrower has the option of either paying the borrowed money in full within the agreed upon timeline or else convert it into a mortgage on the home

It is worth noting that there are two categories of home construction loans which are as follows -

Construction to Permanent Loans - These are the type of loans which automatically get converted to mortgage once the construction of the house gets completed. When the construction is ongoing, the borrower pays the interest part but not the principal. Thus by the time the construction is over, only the principal part of the loan amount remains to be paid.

Stand Alone Construction Loans - These loans are opted by those who pay off the home loan completely once the construction is done instead of converting it into a debt. The advantage of opting for this loan is that it requires much smaller down payment which is better for those who do not have large cash reserves. These loans are generally popular with those who have built a new house before selling off their existing one.

Read Also: Buy Property and Build your Dream Home with Construction Loan

There are many lenders who offer construction home loan. However, if you are purchasing a new house, it is better to opt for the regular home loan as it offers larger amounts of loan and a longer repayment period.

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