Home Construction Loan

Banks and housing finance companies (HFCs) provide home construction loans to customers who want to build a house on their existing land. It offers home construction loans to both existing and new home loan applicants. Most lenders provide this facility as part of their standard house loan product or as a separate offering branded as 'home construction loans' within the broader category of home loans.

Features of Home Construction Loans

A home construction loan could benefit any borrower who wishes to build a house on his plot or an additional level on his property.

• Long tenure: The home building loan is accessible for long periods of time, ranging from 5 to 30 years, suggesting that the borrower's EMI load is low and the loan is inexpensive.
• Tax advantages: Construction loans are tax-deductible on the principal and interest paid under Sections 80C and 24B. Sections provide for a tax credit of up to Rs. 2 lakhs on interest and Rs. 1.50 lakh on principal. Sec 80 EE allows first-time home buyers to receive an additional tax benefit of up to Rs. 50,000.
• Loan Amount: Your income and repayment eligibility influence the amount of the home construction loan sum you can obtain. Construction loans of up to 90% of the property's value are available. To increase your loan amount eligibility, you must add a co-applicant.
• Loan refinancing: You can also obtain a top-up loan as a home building loan on your existing home loan. Banks examine your repayment history to determine whether you qualify for a construction loan to enhance your present loan. In some cases, banks may charge processing fees for issuing home loan top-ups.
• Balance transfer service: Just like home loans, most banks offer balance transfer options for construction loans. If a borrower discovers that his current loan interest rate is higher than the market rate - he can transfer the outstanding balance of his loans to another bank for a charge of up to 1%.

Home Construction Loan Interest Rates 2024

Here is the list of construction loan interest rates 2024:

Home Construction Loan Eligibility Criteria

One must meet the following criteria to be eligible for a home construction loan:

• Age: Between 18 years to 65 years.

• Citizenship: Indian Citizenship and Non-Resident Indians.

• Employment: In case of salaried individual, the applicant must be working under the current employer for atleast a year. 

• Credit Score: The applicant should have a positive credit report with a credit score of 750 and above.
• Residence: One should have a permanent residence. In case of a rented residence, the applicant should be residing there for atleast 1 year.

Home Construction Loan - Documents Required

Given below is the list of documents required (for salaried and self-employed applicants)to apply for a home construction loan:

For Salaried Employee:

• A valid passport and an Aadhar Card as proof of identity.
• Income Tax Returns and Form 16.
• A valid address proof such as Voter ID, Aadhaar Card or Passport.
• Property-Related Documents: Encumbrance Certificate and plot title deeds.

For Self-Employed:

• Identification Proof: A voter ID card and a valid driving license are acceptable forms of identification.
• Proof of Income: ITR, as well as income computations for the applicant and business entity for the past three assessment years.
• Address Proof: Aadhaar cards, utility bills and Voter ID are acceptable forms of address proof.

How to Apply for a Construction Loan?

To apply for a construction loan, one must refer to the following steps:

Step 1: Go to the online application page of the bank or lender. Click the 'Apply Now' button.

Step 2: Select ‘Salaried’ or ‘Self-employed’ option as per your employment status. Now, enter your phone number and date of birth. 

Step 3: On the next screen, enter your basic professional information as well as your monthly income. After completing the necessary steps, click the 'Enter Personal Details' button to proceed further.

Step 4: Fill in your gender, marital status, PAN number, and personal e-mail address on the next page.

Step 5: Determine the loan amount and repayment period. Finally, submit your loan application.