Constructing a house is a huge financial commitment. Even if you opt for a home construction loan, you still have to save money to build a house. With careful financial planning and saving, you can save enough money to build your dream home. But, first off you have to find out the tentative construction cost, so that you can start saving money accordingly.

Try these simple tricks to save money to build your dream home.

Amount of money you need to save

Saving becomes easier when you know how much money you need and by when. First of all, prepare a rough estimate of construction. A professional Architect Now that you know your construction budget, aim to save at least 20-30 per cent of the total construction budget. Because, even if you are planning to avail of a house construction loan, the bank is not going to finance 100 per cent of the construction cost. They want to see your commitment before approving and processing your loan application form. And therefore, you have to save money for the down payment.

How much money you need to cover the initial construction cost may depend on the total home construction cost. But, whatever the total construction cost may be, you should aim to save as much as you can. This will help you ensure you don’t have to borrow a lot of money from the bank. So, look to save anywhere between 20-30 per cent of the total construction cost. However, if you can save more, then that will be even better for you.

Open a savings bank account

Open a savings bank account and consider it as a home-building fund account. You may already have a savings bank account. But still, it’s highly recommended to open a separate bank account and use it to save money for home construction.

This home fund account is going to be used as the main account to save money to build a house. Deposit any surplus money like a bonus, tax refund, commission, and salary raise etc to this account.

Save and invest to get higher returns

Invest the money wisely from this account to get better returns and yields. Consider different investment options like equity and mutual fund investment. They are known to offer better returns than the usual fixed deposit, recurring deposit and saving bank accounts.

If you opt to invest in a mutual fund or other market-linked schemes like equity, then be very careful in choosing the funds and scripts. For the best returns, analyze the past performance of the instrument. Also, check for reviews and comments by experts. Understand the financials of the companies/funds, and then make your best judgment.

However, if you are unsure, it is best to talk to an expert financial planner. A financial planner can help you get a better return out of your investment as per your financial goals.

Cut your expenses

There can be two effective ways to save money for building a house, buying a home or an apartment. Or to meet any of your other present and future financial goals. One is to cut down your present expenses and the other is to increase your earning.

How can you cut present expenses?

Note down all your expenses big or small on a daily basis. Analyze your expenses and you can easily find a few cost heads that can be tweaked and adjusted. Get rid of any cost heads that do not add value and make a huge difference in your life. This will help you bring down your monthly expenses and you will end up saving some extra cash every month. Put this extra cash into your home saving fund and then invest it wisely to get a handsome return.

For instance, if you are going out every weekend for dinner, then you may like to change the frequency of dining out. Instead of dining out every weekend, you may like to go out once every month. Instead of dining out every week, if you eat out just once a month, you can save a substantial amount of money every month.

Similarly, you can get rid of a few of the subscriptions like DTH, and instead watch shows online. Get rid of newspapers and other periodicals and you can read online news. Look for recurring expenses and check out which cost heads can be adjusted to cut your monthly expenses down.

It may appear like a small saving. But, when you seriously want to save money to build a house, every penny you save will help you realize your dream of building a house faster.

Increase your income

As I said, when you want to save money for building a house or to meet any other short or long-term financial goals, you have to save and invest money wisely. Now, if you are able to increase your monthly or quarterly savings even by 10-15 per cent, it will help realize your financial goal much faster.

How do you increase your income?

You have to put in extra effort and build some sort of passive income. Apart from your day-to-day job, find ways to earn a little extra every month. You may consider starting a side hustle because starting a side business is not as difficult in today’s time when you have free tools and apps to take care of your operation. For instance, you can use Canva for designs, Zintego to generate business receipts, Google Calendar for scheduling tasks and so on.

Today we are living in a creative economy where anyone can monetize their skill. So look for a new opportunity where you can monetize your time and skill. Here are a few options you may like to try.

• Look for a part-time job opportunity
• Teaching a few hours on online platforms
• Starting a blog and publishing posts every week
• Take up some freelance assignments as per your expertise
• Start a video blog on YouTube to generate extra income

Do whatever you can to increase your income, even if it’s just a few thousand every month. By investing this extra income wisely, you’ll be able to reach your financial goal faster.

Cut the cost of construction

As a future homeowner, you only know the efforts it takes to build a corpus for new home construction. The sweat, efforts and sacrifices you have made should not be wasted and thus you should look for ways to keep the cost of construction under control.

The process of building a house has changed a lot over the years and there is so much that can be added while building a house. From fancy tiles and marbles to ultra-modern home automation systems, there is much to do.

But, you should not get carried away and look for the features that can add real value to your home. Get your priorities right and accordingly plan for the construction and this will help you build your dream home without getting over budget.

You should also consider hiring a professional architect who can help design the house and estimate the budget for construction. Hiring an architect does not cost much and there are many architects who offer flexible rates as per the level of engagement. Having a professional by your side has many advantages and you must consider this option.

Final thoughts on saving money to build a house

Choosing to build a house on your own land is a big financial and emotional commitment. If you have decided to construct a house, you are actually gearing up towards a long, exciting and overwhelming journey. As it involves a lot of money, it requires a foolproof financial plan and savings. From saving money to manage initial construction expenses to arranging housing loans and getting a house plan in place, this journey is going to be super exciting.

However, saving money to cover 20-30 per cent of total home construction cost is not going to be easy, especially when you do not start saving money early on. I have shared a few simple and easy money-saving tricks that’ll help you to save for home construction. If you follow these simple saving tips and hacks, you will be able to manage the funds much more effectively.

What else do you think can help save money to build a new house? Share your money-saving tips and tricks by commenting below.

The post How to Save Money to Build a House appeared first on Houseyog.

If you already own a plot of land, and you want to build your house as per your space requirements, then there is a specific type of home construction loan that you can avail. If you are planning to build a house of your own instead of buying a flat, and you are wondering about home construction loans, then I have got you covered.

Today in this post, I am sharing everything worth knowing about home construction loan, including:

• What is a home construction loan?
• Difference between home construction loan and a housing loan?
• What are the common types of home construction loans you can avail?
• What’re the eligibility criteria to get a house building loan?
• What are the documentations required to get a house construction loan?
• What is the interest rate for home construction loans?
• How to get a home construction loan approved easily?
• Process of disbursement of loan amount
• Repayment of loan amount and pre-EMI payment

So are you ready?

Let’s dive in.

What is a home construction loan?

Home construction loan as the name suggests is a kind of loan that you can avail to construct a home of your dream on your owned land according to your preference and space requirements. If you have a freehold plot of land that you might have purchased or inherited or leased for more than 49 years then you can get a home construction loan from leading banking and financial institutions in India.

Difference between home construction loan and a housing loan?

Home construction loans are a little different than the housing loans. 

A housing loan is taken when you want to buy a ready to move flat or an under construction house from a developer or a third party in case of re-sale.

However, a home construction loan can be taken to build and construct a house on your own plot of land. You can also avail house construction loan for a leased plot of land, but the lease must be for a longer duration of time like over 50 years.

Moreover, the process of documentation, approval and disbursement of loan amount in case of home construction loan is also a little different than the common housing loan.
Both housing loan and home building loans are offered by different public and private sector banks and financial institutions.

What are the common types of home construction loan?

If you have decided to build a house of your own instead of buying a flat then you have three options to finance your dream home construction projects:

Self-construction loan

You can avail this loan only if you have the free-hold or leasehold plot in your name. So if you have a plot looking for financial help to build a house on your owned or leased land then you can elf-construction loan.

Loan for land and construction

In case you want to build a house, but you don’t own a plot and you want a loan to buy a plot of land and then construct a house, then you can avail this loan option. However, the objective of plot plus construction loan is to help you buy a plot and then build a house on it. So, if you are planning to just buy a plot for now, and then not construct a house on this plot for many years, then you can’t get a loan.

Renovation and extension loan

Renovation and extension loan can be availed when you already own a house, and you want to extend or undertake major renovation work. For instance, if you have a one floor home and you want to build a second floor, or a couple of rooms on the top floor then you can apply and avail loan for such extension.

However, you should also keep in mind that the amount disbursed against the home construction loan cannot be used for any other purpose, other than home construction.  You can’t use the amount for interior decorating, furnishing or buying home appliances like fridge and television etc.

What’s the eligibility criteria to get a house building loan?

In order to apply and get a house building loan, you have to provide required documents to prove that you are eligible for such a loan and that you will be able to repay the loan.

Most of the banking and financial institutions that offer home construction loans will have the same or similar eligibility criteria. However, sometimes loan eligibility criteria may differ and therefore it makes sense to compare and check with a few institutions before applying for such loan.

Here are the key eligibility criteria to get a self construction home loan:

• You must be a resident of India
• Your age should not be less than 21 years at the time of application
• You must be either salaried or self employed (business or professional)
• You must own a plot of land (purchased or inherited)
• Competent to sign a contract

What’s the documentation process for a house construction loan?

The first and most important document required to get a home construction loan is to submit documents to prove your ownership for the land where you plan to build a home. It includes all the documents that can prove that you are the legitimate owner of the land.

Some of the most common documents related to the ownership of the land includes, tax receipt of the land, mutation certificate, sale deed/gift deed/lease agreement of the land in your name etc.

However, some financial institutions will also ask for the no-encumbrance certificate for the land where you want to build the proposed house.

Next, you have to submit the house construction plan approved and sanctioned by the local authority/ municipality (in case of municipal area) or from Gram Panchayat (in case of rural area).

Apart from these documents, the financiers will also need the estimated cost of construction (bill of quantity) verified and signed by a qualified and eligible architect or a civil engineer.

And then, you have to provide the common KYC documents (know your customer) like AADHAAR card, Pan Card, Ration card /address proof and income proof documents which is commonly required for any relation with any banking or financing institution in India.

And if in case you are buying a plot, here’s a detailed post that you may like to check on choosing the best plot of land as per vastu guidelines.

What is the interest rate for home construction loans?

There are a number of private and public banks and financial institutions that offer home construction loans at attractive interest rates. However, interest rates for home construction loans may vary from bank to bank and therefore it’s better to check with the banks for the best interest rate before applying.

Here’s the home construction loan interest rate chart for some of the popular banks in India, as on 26/02/2021 for a loan term of 25-30 years.

Apart from the interest, some banks may charge for processing and documentation fees and that again vary from bank to bank. Rate of interest and processing charge for home construction loans keep changing periodically and therefore we suggest you check the current rate of interest before applying for a loan.

How to get a home construction loan approved easily?

Developers and builders usually get their projects approved with one or more banking and financial institutions to ensure that their customers can get home loans without much hassles. In fact, the bigger developers in major cities can get all the documentation done for you or connect you to baking people who can help you through the process of application and reimbursement.

But, when it comes to home construction loans, you have to deal with the banks directly and therefore it is important to plan everything correctly and get the documentation right before applying.

Here are a few of the tips that can help you get a home construction loan fast and easily.

Start saving for your part

80 to 85% of the total construction cost can be financed, which means you have to plan for around 20% of the construction cost plus. Moreover, you should also keep some cash for other value added services like making house plans, construction estimates and other documentation purposes. Unless you have saved that much money, there is no point in applying for a home construction loan.

Maintain good credit score

Before approaching a private or public sector bank, you should up your credit score. Credit score is a vital factor that says a lot about your financial discipline and it’s an absolute must for you to maintain a good credit score.

Pay any EMI or credit card bill etc on time to maintain a good credit score. If your credit score is poor at the time of application, then your file may get rejected, so maintain a good credit score.

Get the documentation right

You already know about the documentation, so get the documentation right. Get the mutation done, clear all taxes, make a house plan by an expert architect, get a detailed construction estimate prepared and signed by an architect etc.

Apart from that, you also need to get other financial and KYC documents prepared, so collect all your salary slip (income proof), IT filings for the last three years etc.

Get the house plan and construction estimates done

This could be a time taking project, but it’s vital for getting a home construction loan approved. So, hire an architect or an architectural firm to get your house plan designed. Once the house plan and elevation is ready, get them to prepare a detailed construction estimate.

Work with reliable builders and contractors

Disbursement of home construction loan amount is linked with the progress of construction. So, it is important for you to work with the most reliable and trustworthy builder who can work fast. If the construction is delayed for any reason, then you will be at loss because you will be paying interest on the amount that’s already disbursed by the bank.

Keep room for increase in prices

While preparing home construction estimates, always keep room for additional expenses, because the cost of construction materials like steel, cements, bricks etc keeps on fluctuating, so the cost may go up anytime. But that should not pause or stop the construction work.

Process of disbursement of loan amount

Disbursement of home construction loan is linked with the stages and progress of actual construction of the house.

They’ll release the amount in 4 or 5 parts after reviewing the progress of the home construction work on your plot.

You should not expect to get the total approved and sanctioned loan amount credited to your bank account in lump sum.

For instance, if you have applied for a loan of 20 lacs, which is around 80% of the total construction cost, then the first payment will be released only after the plinth level work is over. A bank representative will review the progress before disbursing the amount.

So in a way, when you have already invested your part of money, the bank will disburse a part of the sanctioned loan amount.

Repayment of loan amount and pre-EMI payment

Some banks start charging pre EMI (Equated Monthly Installment) payment, which means that after the first installment of disbursement, they will start charging the interest amount on the amount they have already paid. Actual EMI will only start after the full payment and when the hoe construction work is over.

Conclusion

Building a home of your own, on a plot of land can be phenomenal. When you build a house of your own, not only do you get the liberty to design and build it the way you want, you also get to expand and add extensions as needed.

If you already have a plot of land, then building a house becomes much easier with a home construction loan. The rate of interest on a home construction loan is much cheaper than other personal loans. Moreover, you also get longer tenure to repay the loan amount, and you get some tax benefits under different sections of Indian tax laws.

If you prefer to live in an independent house than living in a flat, then building a house of your own with a home construction loan can be a good option to consider.

I have already shared everything you should know about a home construction loan, the eligibility, documentation process, how to apply and get a loan approved and about the disbursement and repayment of loan amount.

Hope it’ll help you get a home construction loan fast and effortlessly.

What else do you think one should know about home building loans?

Share your tips and experiences by commenting below!

Happy home building!

The post Home Construction Loan: All You Need to Know About appeared first on Houseyog.