11 Apr 2014

Rupeepower Editorial Team

A Home Loan with A Purpose

Either you intend to build your dream home, or you intend to renovate it, more often than not it is the financial aspect that calls for a closer scrutiny. The market is flooded with different kinds of schemes, each one seeming to be more attractive than the others and it is herein that a prospective customer must lay emphasis on. For example, despite competing players in the market it is extremely difficult to get a loan specifically meant for purchase of a piece of land. Moreso even if you manage to get a loan to purchase a land to build your dream home, the maximum amount of the loan is 85% of the cost of the plot (the avergae limit is 50-60%) based on the location of the plot, total value of the deal; and the loan depends on the individual’s repayment capacity. Unlike a home loan whose tenure can extend to 20 years, that in the case of a loan for a purchase of a plot is capped at 15 years that too keeping the retirement age of the individual.
As the risks in offering such a loan is higher, the loans carry a higher interest rate and a bigger down payment. Howebver the advantage that an individual enjoy’s is the fact that he/she can purchase the land and can build their home as and when they desire.

If one were to decide to build a house, then there is a difference between getting a standard home loan and a lona for construction of a house. While in the case of a standard home loan the amount is paid as a lumpsum (i.e. in case of outright purchase 100% is paid to the seller, after payment of margin by the applicant) , in the case of home construction loan the payments can be withdrawn in stages (i.e the draw downs coincide with the construction stages). For example, a bank may agree to pay the loan in three stages (30%, 40% and 30%); the last installment is generally disbursed three or four weeks prior to the completion of the building . Loans for home extension (adding more rooms etc) are alos available in the market and banks provide for approximately 70-80% of the total home extension cost as loan. The loan amount also depends on the age of the customer, tenure of the loan, repayment capacity and more importantly the credit history.

As far as loans for giving a facelift (repair, remodelling et al) for an existing house is conccerned, the lender pays the loan (many a times directly) in proportion to the work being undertaken by the contractor. Apart from first loan, depending on requirements an individual can opt for second loan, home loan refinancing, or may be even personal loan. Home loan refinancing can be used by the individual either to delay/defer his payments, refinancing the loan, lowering the payment or infusing some cash for home improvement. For home décor banks offer 15% of the housing loan with a maximum repayment tenure of 10 years in monthly installments.

In either case, it is the value of the deal, the interest rate given by various banks (NBFC’s) and the credit history of the individual that matters the most.

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