Construction Loans: What are They and How do they Work?

Construction Loans are ideal for building renovations, additions, or extensions. With bulk funding available for major building projects, building owners can rest easy about covering these development costs. Additions to existing properties are also fully-funded with special construction loans.

Aside from getting funding for your business, you also need to consider where to shelter.

Everybody dreams of owning a house. It is indeed a most coveted asset for life and requires a solid financial budget to build.

If you are looking to build a home, the lack of finance will not keep you from your dreams now. Many lenders nowadays offer construction loans to help you with needed finances.

Continue reading the blog to know everything about construction loans.

What is a Construction Loan?

Home construction loans

Home Construction Loans is a type of housing loan that gives the borrower the required funds to construct a house.

These loans are given to those who have a preoccupied land of their own and wish to construct a house.

The lender provides the credit so that you can construct a home by yourself or by hiring a constructor.

The construction loan type does not sanction the loan amount at once but distributes it in instalments. This loan type is different from the ordinary home purchase loan.

Let us discuss how construction loans work to gain a better understanding.

How do they Work?

Here are the essential points and the working of the construction loans.

#1. Loan Amount is Distributed in Instalment

Construction loans work differently. It does not provide the lump sum amount to the borrower in one go.

The lender, based on the progress of the construction, passes the fund in instalments.

It is different from these other loans you may have known before

This fragment fund distribution gives the borrower the time to buy the raw materials. Although the home loan finance amount is approved once, however, is delivered in instalments.

#2. The Distribution is Related to the Construction Work

Lenders keep an eye on the construction, and after the borrower provides them reports of the progress, the fund further is provided.

The whole construction is divided into phases, and each phase has a fixed amount. After the completion of one phase, the instalment for the other is regulated.

#3. Lenders Won’t Pay for Any Change in Construction Plan

When the loan is approved initially, the lender goes through the construction plan. Afterwards, if there is any change in the construction plan, the lender can freeze the fund. If you want to reframe the plan then you need to submit a fresh decision.

#4. Interior Works are Excluded

Before signing the approval, go through the exclusions. The construction loan is signed only for immovable things. Lenders do not include interior work like furniture, plumbing and lighting. The lender does not provide any assistance for interior items.

The concept of a home construction loan is different from other loans. It aims to assist those who want to construct a house and govern the work for the credible construction of the house.

Eligibility Criteria

You can apply for a construction loan online by filling the application form. The eligibility criteria to apply for the loan are-

  • The minimum age limit of the applicant is 21 years
  • The maximum age limit at loan maturity is 60 years for salaried and 70 years for self-employed individuals
  • Up to 90% of the loan to property value

If you want assistance to construct your house, then home construction loans are a blessing for you. Comprehend the terms and conditions, interest rates and paperwork carefully and then select the lender.

Get the financing you need to complete your building project. PNB Housing specializes in construction loans, land loans & commercial lending. PNB Housing are backed by our experience and lending team. Are you looking for easy approvals?

We won’t hassle you with endless paperwork or credit checks. Our construction funding and financing program offers flexible and competitive terms and rates. Contact us today to see if we can help fund your project.

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