Pros and Cons of borrowing home construction loan

Borrowing a construction loan from any of the bank or NBFCs is a bit cumbersome and complex.  To borrow the loan you have to meet the eligibility criteria and other terms of the bank. But, the idea of building your own house can be very exciting. If you have a fair idea about the home construction process and other things in that case you will be able to save more money while constructing your home. Constructing a home is far better and less expensive as compared to buying a ready-to-move in home. If you are constructing a home you will be able to make changes and up-gradation according to your budget and wishes. Here are some pros and cons related to the home construction loan.

Pros of borrowing a home construction loan

More economic and saves money: The biggest advantage of  borrowing a home construction loan is it helps in saving more money. Perhasps, the biggest reason that you would want to get an owner-builder construction loan is to save money on the labour. It might help you in saving upto 40% of the price of a regular house. If you hire a builder to do it for you, they have a markup on everything and they can add up quickly.

Higher level of satisfaction: When you construction your home, you attain higher level of satisfaction. This is even more true when you build your dream home and you saw it from the first day to till the day of completion. It gives you higher level of satisfaction and a sense of achievement. It also gives you a sense of belongingness.

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Lower payment: While constructing your home you can save money by negotiating with builder and buying raw material. You can buy raw material and other important thing by your own and can save more money. You can even postpone some unnecessary task or unimportant things for the time being if you don't want to invest much at the same time. It will help you in saving more money than  buying a ready-to-move-in flat where you can't do any alterations.

Instant equity: While building your own house, you will be able to create instant equity in the form of home. Saving money in some saving plan will take at least 10 years to 15 years to build the equity, while constructing a home will help you in building the equity instantly. If you ever need some money you can arrange it by mortgage your home at the time of requirement.

Cons of borrowing home construction loan

Not easy to borrow: It is not easy and simple to borrow a home construction loan. There are many lenders who don't lend the loan easily and to everyone. Besides, you need to submit various documents of your property and other important documents to get a loan approved by any bank or NBFCs.

Searching a good builder: It is not easy to find a good builder in the market. Even searching a good or certified builder can be more expensive. The cost of involving a builder into your project and give you a surprise. It might be they will ask you to pay them a higher fee as compared to your expectations or budget.

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Higher fee and payments: While borrowing the home construction loan you are supposed to pay some extra fee, which you would have never imagined. You are supposed to pay the design fee to architect, fee to builder, different charges to the local certifying authority to get your papers approved, property tax and other fee related to your land and construction. So, there are many formalities and paper work that also require payments in the form of fee and charges to get the work done.

Long-term commitment: Borrowing a loan and repaying it is a long-term commitment. You are supposed to pay the loan for next 10 years or more as per your opted tenure. During this time you are supposed to pay the EMIs against your loan on month on month basis without a miss. So, you can't use or invest that part of money somewhere else. Therefore, it is a kind of financial liability on you.

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  • Home Loan Interest Rates September 2023
    Axis Bank8.75% - 9.15%
    Bank of Baroda8.50% - 10.60%
    Citibank8.75% - 9.15%
    HDFC8.50% - 9.40%
    ICICI Bank9.00% - 9.85%
    Indiabulls Housing Finance Limited8.65%
    Kotak Bank8.85% - 9.40%
    LIC Housing8.50% - 10.50%
    Piramal Capital & Housing Finance10.50%
    PNB Housing Finance8.50% - 10.95%
    Reliance Home Finance8.75% - 14.00%
    State Bank of India/SBI9.10% - 9.65%
    Tata Capital8.95% - 12.00%
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