Every person dream of owning a home in his/her lifetime right. The one who want to support their family tremendously or is into making investment robustly on real-estate requires own home.
There are some prominent names like home loans, home construction loans or construction loans you must have heard about that helps in fulfilling this dream!
Both loans are beneficial if you are planning about purchasing a residential property. You must be knowing about the home loan thoroughly so we will just be reminding you of it by introduction of home loan then will be discussing thoroughly about home extension loans. Cool!
So, let’s deep dive in with this blog for having better understanding!
Starting with the intro of home loan!
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What is a home loan?
Home loans are amount borrowed by a person to purchase or build a home for themselves or their relatives. The obligation to income ratio for this loan is set. Using a home loan, you can obtain up to 80% of the value of the house. Section 80C of the Income Tax Act permits the tax deduction of a home loan as well.
What are Home Construction Loans?
You can opt this home construction loans only if you wish to construct a residential home for personal use or for investment purpose. Home renovation loans allow you to borrow up to 100% of the cost of the construction, but no more than 90% of the market value. This loan typically forms a portion of a home loan.
This kind of financing does not get disbursed in one single payment. Instead, the loan amount is disbursed in accordance with the building stage and the requirements. The procedure for obtaining the loan is the same as for any other housing loan; to determine the loan amount and the phases at which it will be disbursed, you must present the bank or HFC with a thorough estimate of the home’s development.
Types of home construction loans:
Construction Loan: Construction loans are those that are only used to build a home. Here, the money is just needed to build a house; the value of the land is not factored into the loan amount.
Plot Purchase and Construction Loan: In this form of loan, the loan amount covers a portion of the cost of the land purchase and up to 100% of the cost of building a home.
Home Extension: Home extension loans are available to extend your current residential home in accordance with your needs, such as by adding a room, constructing an additional storey, or extending the ground floor, among other things.
Home Renovation: Property renovation loans are useful if you need to renovate, repair, install new fixtures, etc. in an existing property.
Considerable things before availing a home construction loan:
Loan Amount: When you take out a home construction loan, the loan amount is calculated after considering all the costs involved in the building. You should consider the inescapable extra costs that could be incurred throughout the construction process before applying for home construction loans. Over time, both personnel and material costs do rise. Therefore, it is advantageous if you research these costs in advance.
Loan duration: Loan duration is the time frame during which you repay the loan. In contrast to a home loan, new home construction loan may not always be predictable as to when the home would be finished. You should consider all external circumstances that can potentially cause the construction process to be delayed before choosing the loan payback period.
Credit Score: Good credit score determines your value as a borrower. Banks and NBFCs make evaluations based on your credit score. If you have a good credit score, a potential lender categorizes you as low risk, and if you have a low credit score, you become high risk. Borrowers with low credit scores have less chance of getting their loan approved. Also, the loan amount disbursed is also relatively small. Therefore, before applying for home renovation loans, you should check your credit score to determine the amount of money you can apply to borrow.
Documentation: Like any loans, home construction loans also require the lender to receive some basic documents. Along with that, you must also present your plan for building a home and state the approximate loan amount you wish to obtain. Banks and NBFCs would carefully review all the paperwork before deciding on the loan amount.
EMIs: Once after you receive the loan amount, you must adhere to the repayment plan to avoid fines. For house building loans, you receive the period till the loan EMI truly starts, as the loan is issued in instalments. To lessen your financial stress, you can prepay the EMI at that time. You can also make a partial prepayment of the loan amount.
Home construction loans are a very practical approach to get help when you want to develop the house of your dreams. In comparison to other institutions, HDFC Bank offers the loan at cheap home loan interest rates, and you can also take advantage of other benefits.