This Dussehra build your own home with composite loan

Sukanya KumarRetaillending.comDussehra or Vijayadashami is an auspicious day to begin good things such as business, vocation, home construction for many all over India. Buying a home is one the big achievements for most of us. No wonder, many want to initiate the process on Vijayadashami. For some of us house does not mean buying some flat designed and built by some developer. They prefer to design and build their own dream home. But as you delve deeper in this topic, financing your dream becomes a big issue and many dreams get stuck. However, a composite loan can be of great help.A 'composite' loan is a combination of land loan and construction loan. When a borrower takes a loan, while buying the plot of land, there is high possibility that while constructing a house on it, he will borrow more money. So, if the construction is likely to start without much delay, then opting for a composite loan is wise. Here are the reasons why:1.Lender feels more comfortable: It has been observed in the past that investors who purchased land with loan, expecting a good return, when failed to get so, had stopped paying the loan installments, expecting the bank to sell off the land for recovery and absorb the loss. Banks had to write-off crores of rupees of funding in the past on 'pure' land loan and the aftermath was that some lenders opted out of the product "land loan' completely. So, if there's a composite loan applied for, then the possibility is that the borrower is interested in creating an asset (here, the house) on the land which is an additional collateral for the bank without having to ask for it.2.You avoid applying for a construction loan again: All the paperwork need not be repeated and if a composite loan is already approved by the lender and you get the construction plan approved before the sanction expires (generally six months time), then you can straight away start the construction.3.Helps you in managing the estimate of construction too: When you apply for a composite loan, the bank asks you for an approximate amount of construction budget, to be able to calculate the loan amount. It gives you a prior planning option as many start thinking of this matter after buying the land. Before disbursal of a composite loan, the borrower needs to produce an estimate from the contractor, which speeds up the overall process and an immediate start of construction can happen.4.You are also keen on starting the construction: You pull up your socks to get the architect to freeze the plans and you approach the governing authority to approve the plan fast. Given that you need to complete all that activity before your loan approval expires, is a great push. Your home construction is secure with a loan amount sanctioned in-hand and it relieves you of stress.Some more facts:A. Lenders fund 75-80% of the total land plus construction cost. If the land is in a gated community, then the funding is towards 80% and for an individual parcel of land, it is lower.B. If you have taken a land loan of 75% of the cost of the land, then for the construction too, you need to construct 25% of the house, which is generally the completion of foundation. Of course it depends upon how many storied house you are making to determine an exact percentile.C. The authoriesd valuation expert(s) of the lender will visit and certify that you have constructed 25% of the house (which means you have spent 25% of the estimate you produced on the construction till date) and then the lender will start the disbursal.D. Generally, a construction loan is disbursed in 3-4 tranches and at every tranche, a valuer visits for inspection to submit report to the lender. So, progress in construction loan is pivotal.E. For those who do not know that the disbursement of the composite loan amount is to the borrower's account, they should not be utilising the funds elsewhere. For example, do not buy the doors and locks you need at the end, or buy furnitures with the disbursed funds as the construction progress will have to clearly show that the sum has been invested in the building work.F. Stick to the estimate you provided. Any enhancement will be from your pocket. If, for example, you choose to fix Italian marble floor instead of vitrified tiles which is mentioned in your estimate, then the valuer is going to report that. You are probably enhancing the valuation of the property by fixing better material, but the lender won't fund you before you finish the flooring, if that's the milestone fixed by them. So, you need to pay for the additional cost yourself and finish the flooring to get the next tranche disbursed.Hope this article helps the decision between a plot loan and composite loan.Happy Home-making!