Types of Home Loans for Construction and Flat Sales in Dhaka

Reading time: 8 minutes, Category: Finance & Economics

BestBari, a premium real estate company in Bangladesh, can help you find the best flats for sale in Dhaka.

Disclaimer: This article is provided for general information purposes only, does not consider your objectives, financial situation or needs and shouldn’t be considered or relied upon as professional or personal advice. If you have legal, tax, or financial questions, you should contact an appropriate professional.

In Bangladesh, more people are opting for home loans and property market in booming. According to the Daily Star, “Banks and non-bank financial institutions (NBFIs) perceive the potential business of mortgage loans in the housing and real estate sector to be fast growing thanks to an expansion of the affluent class and people’s increasing spending capacity.”

These trends support the case for a strong residential housing market in Bangladesh. The rising cost of residential accommodation has boosted up the demand for Home Loans in Bangladesh especially in major cities like Dhaka and Chattogram.

However, the home loan process in Bangladesh can be daunting and complicated and when there are so many different types of home loans on offer in the market, especially for construction loans new flat sales in Dhaka. In this article, the BestBari team cuts through the complexity and offers you a helpful guide to better understand the different types of loans and process in involved when applying for home loans in Bangladesh.

Typically banks in Bangladesh offer home loans (mortgages) a repayment period of up 25 years and offer financing up to 70% of the property value. Home loans borrowers also need to look out for other terms and conditions such as the interest rate on offer, hidden costs, early settlement facilities and availability of an overdraft facility (if applicable).

Knowing the basics of mortgage loan procedures in Bangladesh is critical, especially for first-time borrowers in order to reduce costs and complexity. The home loan application process is slightly different to other Western countries, where banks in other countries can use standardised credit score to assess the credit risk of a mortgage application. Read the section below to understand the basic process for applying for a home loan in Bangladesh.

When applying for a home loan in Bangladesh, the bank will ask for certain security documentation such as the Mortgage and original title deed, Property insurance covering fire, earthquake, flood, and cyclone and Irrevocable General Power of Attorney (IGPA).

All documents are submitted to the banks, where the banks take clearance from the Bangladesh Bank on pending loans which is called a Credit Information Report (CIB). The CIB details any outstanding loans the person has or any default the person has made in terms of loan payments. The banks also investigate whether the property that is to be secured by the new mortgage has been secured for other loans, which has still not been paid off.

As part of the home loan application, loan repayments can be made in the form of monthly instalments. Borrowers typically have the option of different repayment periods between 5 and 25 years, depending on their initial deposit and financial situation. The monthly instalment is typically debited from your personal account with the bank and the interest is calculated on a monthly reducing balance.

In terms of the borrower securing the loans, there are certain requirements which need to be fulfilled. This is where a professional legal advisor or solicitor usually comes in handy for the borrower,

There are some technical issues which need to be addressed and which helps prepare the borrower in terms of the type of loans they can expect to secure from the banks. It starts with the valuation report which lawyers can assist in preparing for the mortgagor. For further information, speak with a solicitor or contact us if you like to be referred to our trusted panel of qualified legal advisors and professional solicitors.

If you already know the budget of your desired flat sale in Dhaka and also know how much you would like to borrow, you may like to use Bestbari’s free home loan calculator to get an idea of your regular repayments, which can be useful for your cash-flow budgeting and expenses.

The BestBari free home loan calculator helps you estimate your regular repayments for your cash-flow budgeting.

Types of home loans in Bangladesh

As discussed previously in this article, there are different home loans for different purposes in Bangladesh. The real estate sector is growing fast because of these different home loan schemes offered by bank or financial institution. Below, we discuss the different types of loans offered in the Bangladesh market.

Standard Home Loan

In Bangladesh, regardless of whether the home is new or old, the home loan is the most widely used type of loan. A typical or standard home loan is a type of loan, where a bank or financial institution lends money to a borrower who pays interest and principal for the life of the loan. The bank or financial institution uses the new or existing home as collateral or security as protection in case the borrower cannot pay the loan back.

In other words, if the borrower defaults on the home loan, the lender (e.g. bank) can take possession and ownership of the home. Standard home loan are provided by the major banks and non-banking financial institutions (NBFIs) in Bangladesh. The typical repayment period is usually up to 25 years and the banks and NBFI usually offer financing up to 70% to 80% of the property value.

Home Construction Loan

A home construction loan is a type of loan that a borrower out to fund the construction of a new home such as a new apartment or house. According to the lender, the bank or financial institution will have offer different interest rates depending on the perceived construction or building risk the lender determines.

Some lenders may provide the flexibility for the borrower to draw down on the home loan construction loan in phases or instalments, which may save the borrower substantial amount of interest payments given that the full loan isn’t being charged interest on day one while the property is being built or developed.

Land Purchase Loan

A land purchase loan is simple a type of home loan agreement where a loan is secured by the land the borrower purchases. Similar to a standard home loan (discussed above), if the borrower defaults on the land purchase loan, the lender (e.g. bank) can take ownership of the land. This kind of home loan is generally provided by the major banks and non-banking financial institutions (NBFIs) in Bangladesh.

Home Extension Loan

A home extension loan is generally offered by the banks and financial institutions (NBFIs) in Bangladesh and is used by borrowers to obtain funding to extend their home. For example, the home loan borrower may like to expand the home by adding a new floor, room, bathroom or balcony to the existing property. A home extension loan can be a cost effective way for a home owner to borrow funds to extend their property given that the loan size isn’t as large as taking out a new home purchase loan.

Home Improvement Loan

As the name suggests, a home improvement loan is a loan taken to improve a property owner’s existing property. For example, the home loan borrower may like to improve their existing property for interior renovations like upgrading the kitchen, bathrooms and design of the home. The loan amount and time to pay-off the home improvement loan is generally less than new construction loans.

Contact us if you would like us to refer you contacts of banks that are currently providing attractive interest rates and offerings. We can provide a complimentary consultation about the right type of loan to apply for and offer you access to the very best interest rates, discounts, processing times to help securing financing fast for your ideal flat sale in Dhaka. BestBari has exclusive partnerships with banks and financial institutions and we can offer you competitive home loans to make your dream home into a reality.

Do your Research to Compare Different Banks

Now that you understand the different types of loans offered in the market, it’s time to do your research and compare the offerings from different banks and financial institutions. It really does pay to do your research, especially when it comes to selecting which bank or financial institution to borrow from for your home loan.

 If you are looking to fund your property with a home loan, make sure to get your pre-approval from a bank as soon as possible. The pre-approval will give you a good indication of what your maximum budget can be if you’re looking to borrow. The pre-approval will consist of the bank assessing your income and expenses and determine the capacity and maximum amount you can borrow.

Always compare your interest rate and processing fees before opting in for a home loan in Bangladesh. Also, be aware of the hidden charge. There are many cases where banks have misinformed people about home loans and charged borrowed substantial hidden costs. We suggest comparing a few banks in relation to their terms, offering and interest rates so that you make a careful and smart financial decision of which bank to go.

Please contact us if you would like us to refer you contacts of banks that are currently providing attractive interest rates and offerings. BestBari has exclusive partnerships with banks and financial institutions and we can offer you competitive home loans to make your dream home into a reality. With our exclusive network of banks and financial institutions in Bangladesh, BestBari will provide you access to the very best interest rates, discounts, processing times, and priority VIP service to help finance your ideal flat sale in Dhaka.

Deciding on the Right Home Loan 

If you decide to go ahead with a home loan for your next property purchase, it is crucial to understand the home loan application process and risks before committing to a property purchase and new home loan. We suggest that you speak with a trusted consultant at BestBari and speak with our dedicated legal advisors before signing any contracts, given how complex mortgage and property law is especially in Bangladesh.

If need assistance on sourcing a lucrative property for purchase in Bangladesh, please contact us for assistance. Our team of property specialists in Dhaka will reach out and help you find your dream flat sale in Dhaka.

If you would like to find out more about purchasing commercial property or flat sales in Dhaka please contact us to book in a complimentary consultation with one of our trusted property consultants.

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