What are Building Loans?

What it is all about

Building loans are credit accounts that you can set up with your creditor. The account will be used for purchasing property and building a house on it. Funds will be released into your building loan account as they become necessary for the completion of the project.

Features

Most building loan plans have the following standard features among others:

1. The client starts repaying the loan once the house has been completed,
2. There are many options for repayment, including; cash deposits, check deposits, bank transfers and others.
3. The client is allowed to register a bond with a value up to 50% more than the property’s worth.
4. The client is allowed to access his account through the internet via Internet Banking.
5. The amount of each repayment is maximum at 30% of the client’s monthly income.

At the same time, some requirements need to be met by the client, like:

1. A certain minimum monthly income is required of the client.
2. This type of loan is restricted to residential type buildings only.
3. The client is required to have a reliable and regular source of income
4. The income of the client is assessed for the purpose of determining loan limits.

Steps in acquiring a building loan

If you want to avail yourself of a building loan, you will have to go through the following processes:

1. Start out by scouting for an ideal location. Then hire a building contractor to make the plans of the building according to your specifications. You don’t have to choose an expensive location, but buying in a good location will make the resale value of your house better. Ask the building contractor to quote a tentative cost for the project. With your plans and your quote, approach the bank.
2. The bank will have to assess if the amount and the stability of your income makes you eligible for availing of such a loan. The bank will only accommodate you for a loan that is reasonably payable within the limits of your current income capacity. This means that at the start, you may have to settle for half of your dream house.
3. The bank will also study all the approved plans for the building and all other documents that will serve to substantiate the quotation that your building contractor made. The bank will use these documents to assess the proper amount of loan to grant to you.
4. In case you loan is approved, make sure you don’t divert funds.

Word of advice

The advantage of using a building loan to build your house is that you don’t really start paying until the project is over, unlike if you have your building done on your own However, to keep your balance manageable, try to pay at least the interest on the loan monthly. Something you should carefully consider also is the reliability of your builder. Getting an unreliable or dishonest builder can get you entangled in a financial mess.