6 Mistakes to Avoid When Applying for a Construction Loan in 2020

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Construction Loans in Kenya

Taking a construction loan is a great way to reduce financial stress when building; when running major renovations; or when developing new rental units in line with your financial focus. 

And unlike mortgage loans;

  • construction loans are short-term financing agreements.
  • They provide borrowers with upfront cash to buy land to build on.
  • Construction loans don’t penalize borrowers for early repayment of loans. 
  • These types of loans will only charge you interest on the amount used during construction. 

For instance, if you were approved for Ksh. 10,000,000 and your construction project goes to cost Ksh. 7,000,000; the interest will be charged on the latter figure.

6 Mistakes to Avoid When Applying For a Construction Loan.

construction loan in Kenya

When applying for these types of loans though, there is a possibility that you will make a mistake that can cost you the loan approval.

Or even make a mistake that will make the repayment process so painful long after the construction project is finished.

To be on a safer side, make sure you read this post to the end to know the mistakes to avoid through the entire construction loan application process.

1. Don’t Draw The House Plan Before The Initial Approval of Your Loan. 

It is OK to get excited about the hopes of your loan getting approved. And it is also OK to get jittery and want to share your new house plan on Facebook and Instagram.

But it is not OK to have an architect draw the plan of your house prior to the approval of your construction loan.


Because if your architect draws a plan that is over the budget you may get in trouble with your lender when they send an independent valuer over and your notes don’t match.

Even if the bank goes ahead to lend you the money agreed upon, you’ll still feel the pinch trying to cover the rest of the cost from your pocket.

Then of what essence would taking a construction loan be if the stress still comes back to you?

 2. Don’t Misguide Your Loan Officer.

One of the reasons why repaying loans become a painful process is because some borrowers would rather lie or misguide the loan officers to get the loan approved; than just tell the truth and let the system decide what’s worth giving.

Problem sets in when after the financing of your project you can’t make timely payments due to financial strains.

This either leads to unnecessary fines, frequent defaults and ultimately; the lender auctioning your property to get back their money.

And giving back a property to the bank is a major setback.

You don’t want to do this to your kids?

You don’t want to be a homeowner for a minute and homeless in the next few seconds!

Here’s a list of things to avoid to ensure you are not a victim of property auction.

  1. Be honest to your loan officer during the application process.
  2. Let the lender pre-approve you to determine how much you can afford so that you can plan around that figure.
  3. Explain to the bank your intentions with this property. Do you intend to rent it out? Do you wish to live in it? For how long? All these factors play a role in determining if you can afford a construction loan.

3. Don’t Forget to Inquire About The Interest Charged for a Construction Loan.

Construction Loans in Kenya

Interest rates of a construction loan can either float or be fixed. 

You wouldn’t know which option is best if you don’t talk to your lender about it.

Floating interests refer to low-interest rates that are change based. A floating interest can be 9% today and 11% next year. Or 9% today and 7% next year. It is difficult to budget or manage your financials with this option.

Floating interest rates will rise or fall if there is a change in the financial markets.

On the other hand, fixed interest rates refer to interest rates which are static. They are often higher than floating rates but very easy to plan your repayments; have lesser risks and are not swayed by market conditions.

Talking to your loans officer about the interest rates and the form you want the rates to take means getting the best deal.

And since the remaining cost of construction can be cleared by taking a mortgage loan on the completed construction project; you should ask the loan officer if the interest will remain the same after the construction loan takes a mortgage form.

Just make sure everything is clear before you commit to the process.

4. Don’t Settle on The First Lender You Walk-in to, Window-shop for Better Deals. 

Since construction loans are a bit complicated than mortgage loans, it is OK to talk to different lenders before deciding on who to pick.


Because: – 

  1. Interest rates may differ by lender.
  2. Construction loans are short-term loans and they need a solid repayment plan and window Shopping can lead you to a more versatile lender. 
  3. These types of loans are sometimes paid direct to the contractor instead of the borrower. But if you want it paid to your account, you don’t have another option other than to window shopping for a more lenient lender.

5. Don’t Just Hire a Contractor, Hire The Best Contractor For Your Project.

When taking a construction loan, the reputation of who you choose for a contractor either speeds or delays the approval and disbursement process of your facility.

This is because all lenders must be approved by the lender – prior to the commencement of the construction project.

This is the part when you sign a construction contract with the builder with emphasis on both of your responsibilities and the cost of construction.

Most lenders will pay your building contractor direct.

Make sure you do due diligence on your side to avoid being swindled.

I mean, who knows if the builder can take the money and not meet his side of the contract. Worst is if they come highly recommended by you to the bank, Who then do you blame?

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The Best Construction Loan in Kenya.

In Kenya the ideal construction loan lender are commercial banks. And though they are not so many, the few in the space are good enough and will help you with your project. 

A List of Building Home Loan Companies in Kenya.

  • Family Bank Construction Loans.
  • Co-operative bank business mortgage and construction Loans. 
  • Barclays Kenya Construction Loans.
  • Stanbic Bank Kenya Construction Financing. 
  • NIC Bank Construction Loans.
  • National Bank of Kenya Construction Loans. 
  • Consolidated Bank of Kenya Commercial Construction Loans.
  • KCB Commercial Loans.
  • Commercial Bank of Africa Construction Loans.

HF Group Construction Loans.

HF Group has been the best home loans company for Kenyans since 1956.

In its early days it was co-owned by the government in a share percentage of 60% – HF Group and 40% by the GOK.

Later HFCK now HF Group acquired all the shares.

Construction Projects Financed by HF Group.

HF Group financed the building of Buru Buru Estate – phase one and two. Each that was completed with 926 and 625 units respectively.

This company has since financed many other massive projects across the country and is now giving land owners the opportunity to own homes and residential units with their home building loans.

The HFC Group Construction Loan is disbursed directly to the contractor. 

Interesting Post: – Unsecured Loans in Kenya.

Requirements for HF Group Construction Loan. 

  • You need to submit an Approved Building Plan. 
  • Submit evidence of your contribution.
  • Bill of quantity.
  • Contractor agreement – you can ask them for contractors who they have approved in the past – it will fasten the process. 
  • Profiles of (Project Manager and or, Architect, Quantity Surveyor, Contractor, Structural Engineer).
  • Professional indemnities of the Architect and engineer.

Features of HF Group Construction Loan.

  • You get up to 90% financing if you will be occupying the built house. And up to 70% financing if you intend to lease the units.
  • You pay interest for a period of 12 months during construction. 
  • Loan repayment term of 20 years for employed clients and 10 years for SMEs.

Benefits of The HF Group Construction Loan.

  • You get construction monitoring services. 
  • Interest is only paid during the construction period. 
  • Customers get access to in-house construction management team at HFC.
  • The loan will be converted to long-term mortgage after the completion of the project. 

Fees & Rates Involved.

  • Commitment Fee of 1.5%.
  • Valuation fee of approximately 0.5%.
  • Legal Fees of approximately 1-2%.

Interested in HFC Construction Loan?

The Best Home Building Loan In South Africa. 

Absa Building Home Loan.

The Absa building home loan helps you buy land or build your dream home. You can also take this home loan for renovations.

Features of Absa Building Home Loan.

  • Progress payments are made for completed work in stages.
  • Repayment starts after nine (9) months of bond registration.
  • Interest will be debited and capitalized from the date of first payment.
  • Absa provides financial planning consultation with a qualified adviser.

Requirements for Taking the Absa Building Home Loan.

  • A single or joint gross monthly household income of R23 300 or more.
  • A valid, bar-coded South African ID or passport if non-South Africa resident.
  • An offer to purchase (if purchasing a property or refer to Building Loan Process if building).
  • Your latest salary advice (or income statement if self-employed).
  • Provide consent for three (3) months’ bank statements if banking with First National Bank (FNB), Nedbank or Standard Bank, otherwise provide three (3) months’ bank statements
  • NHBRC Builders Registration Certificate.
  • A signed Waiver of Builders Lien (Absa form 1295BX).
  • Schedule of tender and finishes.
  • Minimum specifications (Absa form 1284EX).
  • Plans that are submitted for approval (working drawings) with measurements, or 
  • Municipal-approved plan.
  • Fully completed and signed building contract.
  • Builders all-risk insurance. 

Interested in the Absa Building Home Loan?

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