Why go for a construction loan

A dream most of the people is to own a house. But it is not very easy to construct a house. It, in fact, can turn out to be a very lengthy process and a constant drain on your time and money. In such a scenario one can opt to take a construction loan, also known as home construction loan or self-build mortgage.

What are construction loans?

Construction loans are generally short-term loans that are given to people who wish to construct a building on an empty plot of land. These loans are unique in some ways as the entire loan amount is not disbursed in one go. Rather some specific amount is lent out at various stages of the construction are completed, according to a pre-decided schedule, or as any particular condition is met. Once the construction is completed, you are often required to take another loan known as “end loan” to pay off the construction loan. Construction loans might be of two types: construction-to-permanent or stand-alone construction.

Qualifications for getting a construction loan

Since a huge amount of risk is involved for the lender, there are lots of specifications a borrower is required to meet:

  • Licensed and qualified contractor and builder must be involved in the construction
  • A large amount of money will be required to be paid as down payment to protect the lender against any loss
  • The value of the yet to be constructed house and land need to be appraised


  • You’ll have a hard time getting a loan if you have hired a general builder/ contractor or are doing it yourself
  • It might require you to take up multiple loans
  • The construction seldom gets completed according to the planned budget and the estimated time frame. Delay might be caused due to any number of reasons

It is easy to think of taking a construction loan as an easy source to money, but there are a lot of things to be kept in mind before taking a loan to avoid getting trapped in a debt cycle or turning bankrupt. It is vital to inquire and research well about the lender as well as the builder before getting a loan to avoid getting stranded mid-way.

Leave a Reply

Your email address will not be published. Required fields are marked *