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Construction Loans Overview


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How Does It Work

1- The construction loans offer the benefit of interest only repayment for the land cost before construction begins and interest only repayment during the construction process.

2- The entire construction process is divided into phases, generally five stages from slab down to lock up stage.

3- The draw down payment to the builder is done in installments that are linked to completion of a specific part of the construction process. This helps you pay interest only on the drawn down amount and not the entire approved loan fund.

4- On completion of the construction the loan gets converted into a standard Flexi-rate loan. The construction must be completed within 2 years from the start.

How to Apply For Construction Loan

In addition to filling up the application form and enclosing the standard financial and personal identification documents, these also look for building plans & specs, and builder & sub contractor contracts. It would also need the necessary approvals from the local administration.

Other Documentation Required For Disbursement

Before the lender disburses the funds, the borrower has to provide building permit and hazard/builders risk insurance copy. Other specific documentation would depend on the nature of construction and the lender’s requirement. There can be additional requirements at the completion stage when the loan gets converted to standard financing terms.

Understanding Other Charges Linked With Construction Loans?

Yes, in addition to standard processing charges, these might include inspection fees, modification charges.

What is the maximum amount of the construction loan that can be approved?

Generally the borrower can get up to 95% of the total value of the property along with the possibility of additional funds for insurance if needed.

Is Private Mortgage Insurance needed?

In general the PMI is needed in permanent loans when the down-payment given by the borrower is less than 20% of the property value.

What Is The Mode of Disbursing Funds?

Construction linked disbursal checks are issued either jointly to you and your builder, or in your favor, or your builder’s.

Can I Get More Funds If The Construction Costs Increase?

You need to get into a fixed price contract with the builder before applying for this type of a loan, as any increase in construction costs later can be borne by the builder.

Can I get a construction loan for renovations?

Yes, as long as you have a fixed price contract from the builder for the necessary renovations to your property.


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