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New home construction loan

Constructing ones own home has been a dream for every individual. Every possible effort is made by each and every person to construct a home of his or her own choice. A few years back constructing a house by utilizing your own resources was a possibility but nowadays it is a very difficult preposition. Due to the rise in the prices of construction material and lesser income generating avenues the construction business has seen a downfall. Thus the new home construction loan avenue has come up as a blessing in disguise for all individuals and groups operating in home construction s. These home construction loans are provided by both the private and public sector banks respectively. The home loans are provided to individuals who clear various formalities of the banking institutions. For availing a home loan a person has to clear the field investigation report (FI'S) of the banks. This investigation is carried by agents deputed by various banks and based on their report the loan is sanctioned. A loan is sanctioned only when the investigator report is positive. An investigator lays stress on the financial position of the borrower and the market value of the land being used for construction. Any individual who bears a negative field report can be refused funding by a financial institution. Completing some file work is also an essential formality for availing home loan. Therefore a new home construction loan can be availed after a specified set of formalities are completed.


Interest rates and loan processing:


When we avail the financing facilities from any banking organization it is always associated with an interest component. new home construction loans provided by the private and public banks have variations in the rate of interests. Interest rates vary from eight to twelve percent for the public sector banks. Interest rates are generally a percent more in case of private sector banks for the respective loan amount. Interest rates are regulated by a central body for all the categories of loans. Interest component varies according to the number of years of a particular loan. For example the interest charged for a loan of five years will be lesser than the interest charged for a loan of ten years. This is because for a longer loan the installments with interest are more and so is the interest amount. For the housing sector the loans are imparted for a minimum of five years and a maximum of twenty years and are governed by various factors. These factors might be the financial position, the repaying capacity and the age of the loan taker. Processing of a home construction loan involves completion of various formalities after the initial field investigation stage. Various files, loan documents and agreement sets have to be signed by the borrower. In many cases signatures of a third party or a guarantor are also required to complete the loan documents. This is required to strengthen the banks hand in case of a default or nonpayment of a loan by the first party.


How the loan funds are transferred to client account?


After various formalities of investigation and completion of documentation the banks take a few days to disburse the new home construction loan funds to the respective clients account. The various files and documents are sent by the field officers to their seniors for their approval and final signatures. After the files are dispatched from their desks the case is said to be complete. Instructions are given to the cash department to credit the borrowers account on the next working day. Only twenty to thirty percent of the total loan amount is disbursed in the first installment. The remaining loan installments are transferred after the bills of the expenses incurred on home construction are received. The final loan installment is transferred when the construction of the home is in the final or completion stages. Thus there is a stepwise procedure of transferring home construction loan amounts into the borrowers account. This all ensures that the borrower of a particular loan utilizes the loan as a whole for his home construction needs and not elsewhere.


Documents required for home construction loan :


An age proof along with the current and last two years income tax returns are very important. Bank statement for the last one year, address proof document and land documents are required. In cases when a guarantor is involved his address proof is also required. The value of returns filed should be at an eligible level to qualify for funding. Nearly all the home construction loan funding banks charge file processing charges from the borrower. Complete maps of the various floors to be constructed in the specified budget have to be attached with the loan documents. In some cases a clearance report from the concerned corporation office has to be attached to the loan document.


Advantages of new home construction loan :


A few decades back there were very few banking and financial institutions offering home loans. This led to the coming up of a large number of private money lenders. These lenders got the various land documents of a particular borrower in their possession in return for advancing monetary help. They charged high interest rates from their clients which in most cases became impossible to return. Thus they took possession of the borrower property to repay his debts. This system of private money lenders has been completely replaced by new er banks coming up in the public sector offering new home construction loans on a large scale. These banks follow a transparent system of funding and provide the best facilities at very nominal interest rates. By a simple method of documentation these institutes impart loans to prospective individual for fulfilling their home construction requirements. Thus the services provided by these institutions have greatly boosted the home construction sector.


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