All You Need To Know About Composite Home Loans
Have you always wanted to build your dream house with in-door swimming pools and a multi-car garage? Do you dream of owning a vacation home on a particular piece of land in a certain locality?
If this is what you want, then composite home loan is for you.
MakaaniQ tells you what you need to know about composite home loans.
What is a composite home loan?
It is a loan taken for purchasing a plot and constructing a house on it. In other words, a composite home loan is a combination of plot and construction loans. The cost of both the land and construction are included in the composite loan.
But keep in mind that the composite loan is not disbursed as a lump sum amount. The disbursement of a composite loan takes place in parts. So, the first disbursement will take place when you purchase the plot. The rest of the disbursements will occur as and when the construction of the house progresses on the piece of land you purchased (i.e. just like in case of construction loans). The disbursement for the construction of the house will happen based on the level of construction.
What purpose do composite loans serve?
Stage 1: Purchase of plot and receipt of land documents
Stage 2: The construction of house on the purchased plot according to the construction plan approved by a competent authority along with an estimate of the construction cost
Quantum of finance
- The loan amount is assessed based on Fixed-Obligation-to-Income Ratio (FOIR) as it is done in the case of a standard home loan
- Loan disbursement towards an acquisition of plot and construction of the house is decided based on a certain percentage of the cost of land and the balance amount of composite home loan left after deducting the loan towards the acquisition of plot.
- Loan-to-Value ratio (LTV) norms are the same of that of home loan.
- Margin money is pooled in at two stages. The first stage is when the plot is purchased, and the second is when the house is being constructed. This is done to ensure the investment of the applicant at both stages.
The permissible time for completion of construction
Most lenders demand a declaration from home loan applicants regarding the completion of construction within a pre-decided period of time (mostly ranges from 3 to 5 years), from the date of possession of the plot.
Completion of construction would mean completion of at least 80 per cent according to the project plan and as certified by the bank's empaneled valuator.
Closure of Composite Loans
According to the Reserve Bank of India (RBI) guidelines, floating rate composite loans are exempted from all foreclosure and prepayment charges. You must pre-check the clauses governing foreclosure and pre-payment charges of composite loans in the home loan agreement.
Guidelines on sanctioning composite loans
These conditions have to be met for a composite loan to be sanctioned:
- A reasonable estimate of the cost of construction of the house is mandatory
- The estimated cost must be validated by an architect/Chartered Accountant
- Technical report is needed to estimate the progress and level of construction