There’s building a house and then there’s affording to build a house. Unless your M-Pesa balance casually holds seven figures, most Kenyans dreaming of constructing a home will need help from a bank, SACCO, or microfinance institution.
That’s where construction loans come in. But what exactly is a construction loan, and how does it actually work?
Before your head starts spinning with terms like disbursement schedules and valuation reports, let’s break it down clearly and simply.
What Is a Construction Loan?
A construction loan is a short-term loan designed to finance the building of a residential or commercial property. Unlike a traditional mortgage that helps you purchase a completed house, construction loans release funds in stages, aligned with the project milestones.
KCB Bank Kenya
KCB Bank offers its construction loan under the Mortgage Plus product. Borrowers can access financing up to 100% of the construction cost if the land is used as collateral. Subject to qualification criteria and current bank policy.
The loan has a repayment period of up to 20 years, with a variable interest rate typically ranging between 13% to 14%. Funds are released in phases depending on certified progress.
Co-operative Bank Kenya
Co-operative Bank provides construction loans to both salaried and self-employed individuals. The loan amount is determined by your income and the value of the land.
The typical interest rate is around 13% to 14% per annum, with a maximum repayment tenure of 15 years. Applicants must provide proof of income, approved building plans, a valid title deed, and contractor details.
Equity Bank Kenya
The construction mortgage finances the full project. Loan limits depend on your income and the total cost of the project.
Interest rates range between 13% and 15%, and repayment terms extend up to 20 years. Required documents include land ownership proof, approved plans, permits, and a BQ.
Absa Bank Kenya
Absa Bank offers a flexible construction loan solution that can be seamlessly converted into a mortgage upon completion of the project. If you own land, you can access financing of up to 90% of the total construction cost. Subject to qualification criteria and current bank policy.
The interest rate starts from 12.5% and goes up to 14%, with a repayment period of up to 25 years. Security includes both the land and the structure being built.
SACCO Construction Loans
Stima SACCO offers attractive construction loan options with interest rates as low as 1% per month on a reducing balance basis. The repayment period is between 5 and 7 years.
Members can borrow up to 3 to 5 times their savings, and security can either be the land title or SACCO deposits. Disbursement is done in phases based on project progress, and approval tends to be faster than banks especially for consistent savers.
Harambee SACCO and Mwalimu National SACCO offer similar terms but often require consistent contribution history. Loan terms, interest rates, and approval timelines vary by lender and are subject to change based on qualification criteria and internal policy.
