A Guide To Basic Understanding of Home Construction Loan

For most of us, constructing our own home is the ‘it’ thing we want to do in our life. Even after you have chosen the right plot of land through careful evaluation, home construction can take a toll on anybody’s finances, considering the amount of money it requires in the first place to get started. You might have gotten the Best Home Loan Interest Rates, but have you thought about taking Home Construction Loan? If the former helps you get the land where you want to build your home, then the latter ensures you get the assistance to turn the home into a house. 

Getting Started With Application Process of Home Construction Loan

If you have applied for a home loan, the basic eligibility criteria and documentation are mostly similar. As a borrower, you will be required to submit the following documents:


  • Proof of income
  • ID card
  • Employment proof that will allow the lender to assess your repayment capacity

Under construction loans, lenders monitor the progress very diligently and project estimates. Before sanctioning the loan amount to you, banks are usually tight with documentation and hence, keep the following two factors in mind that will help you in your application process:

Get your property documents ready: The property you have purchased will act as a security and is mortgaged to the bank until the loan is repaid. Apart from this, also keep the sales deed, approved plan, NOC from the municipal authorities, and legal status of the plot by your side. The lender you will select will carefully and thoroughly check the property documents.

Read Also :How much is a Human hamster ball?

Ensure your construction plan is ready: Don’t commit the mistake of submitting the tentative construction plan; it will certainly get rejected. Banks or lenders will ask for a detailed construction plan from you while you are submitting the loan application. Thus, get your construction plan ready and do ensure it includes all the details such as floor plans, boundaries, the purpose of the property you are buying, and what is the value of the property? Banks also would want to know the total cost of construction, time period and projected profits if in case you resale and rent. 

Note: It is not every day we buy a house and Apply for a Home Construction Loan. Hence, research extensively online and ask around for recommendations before you choose the final lender.

Here are a few pointers to keep in mind while availing home Construction Loan for the construction a house:

Amount disbursed in a staggered manner: Where the complete home loan amount is disbursed into your account after negotiating the best home loan Interest rates,  Construction Loan for a home isn’t disbursed like that. The amount is divided into instalments and disbursed at different stages. The lender doesn’t release the whole amount at once; rather, it disburses according to the construction stages. Moreover, the bank will require photos of the different stages of development as proof of progress. It is even possible the bank will get them verified by an architect from their end as well to check whether it is authentic or not.  

Requires Pre-EMI payment: Unlike standard best home loan Interest rates, you will be required to make pre-EMI payment interest on the total disbursed amount. That is, the borrower will be required to pay the interest on disbursed amount until the full loan amount is obtained. Afterwards, the regular EMIs will start. In case the construction is delayed, the borrower can start the repayment schedule. 

Cannot change the house construction plan afterwards: Before you apply for the loan for home construction, make sure you are clear about the construction plan of the house. It is because once the loan is finalized and approved by the bank, the plan cannot be changed afterwards. For example, while applying for a loan, you submitted a 3 BHK house plan; under no circumstances it can be altered to a 4 BHK  or 2 BHK plan. Hence, take into account the best home loan Interest rates and the EMI you are already paying to ensure you will be able to repay the loan amount. 

Tax benefits:  After the construction of the house has begun, you can claim up to Rs. 1.5 lakh for repaying the principal amount. This benefit is given under section 80C of the Income Tax Act. But here is a catch, the same tax benefit is not applicable if you have started to pay the EMI before the house has been completed. In case you sell the house within 5 years of construction, the tax dedications will need to be reversed. 

Short tenure: The main difference between a home loan and a home construction loan is that the latter is shorter in tenure. 

Cost of interiors is not included: Most people might think that a home construction loan and home renovation mean the same thing, but it is not. A home construction loan only covers the cost of permanent features of building a home, and it is the home renovation loan that helps you buy the furniture and takes care of the plumbing expenses and lighting. When you have taken a house construction loan, all these expenses will have to be borne by you.

The borrowers should also that cost of interiors like furnishing, electrical work, plumbing and other expenses shouldn’t be included in the loan amount. One must know that a loan for home construction isn’t passed out on the basis of minimal documentation like a personal loan. The lenders laid down the eligibility criteria for the borrowers that they need to meet, and only after successful approval of the application the loan amount will be credited into your account in a staggered manner. The eligibility criteria are but are not limited to include: a good credit score, minimum age set by the lender, and must fulfil the monthly or annual income requirements. Make sure the lender you choose at the end is transparent about the best home loan Interest rates and other charges associated with the loan.

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button