A "low interest" loan shouldn't mean you have very little interest in paying it back!
  • Home Construction Loans

    Building a house, especially your own home, is a very special experience. Right from planning its architecture to laying the first foundation and designing its interiors, the joy, satisfaction and fun is inexplicable. The flipside being that it can be a very long drawn, tedious and expensive process. The more practical aspects of constructing a house involves a lot of responsibility, thorough research and in-depth planning. For most of us, paying home construction expenses up front can be a mammoth task, or absolutely impossible. Getting a mortgage might not be the most ideal thing to do, and can also be very tricky. In this scenario, the best thing to opt for is a construction loan.

    A construction loan is offered by most leading banks for the purpose of construction of a house/residential property. With this loan you can get the financial assistance to construct your dream home on a plot owned by you. Banks insist that the land on which the house is being constructed must be owned by you.

    Features and Benefits of Home Construction Loans:

     

    A home construction loan is essentially a short-term loan that is applied for when the applicant is constructing a home on an empty piece of land. Home construction loans are unique. The funds released by the lender is determined by the stage of construction the home is in. The borrower is required to pay interest on only the money that he or she borrows and not on the whole loan amount.

    The benefits of home construction loans are:

    • Home construction loans are approved within minutes and without much hassle.
    • Home construction loans have fast disbursal time.
    • Home construction loans generally have low interest rates.

    Home Loan vs Home Construction Loan:

     

    Differences between home loan and home construction loan are:

    • Difference in loan tenure: The tenure of a home construction loan is shorter than the tenure of a normal home loan. Hence, the EMI of a home construction loan is higher than that of a normal home loan. Also, when the applicant applies for a home construction loan, he or she must provide a detailed plan of the different phases of construction, a timetable for the construction of the house and a business budget that is logical.
    • Difference in disbursal of funds: The disbursal of funds in case of a home construction loan is done in phases and the lender keeps a sharp eye on the progress of the construction of the home, whereas in case of a home loan, the funds are given to the borrower in one go.
    • The difference in tax exemption: The conditions for the tax exemption of a home loan and home construction loan are similar with one single exception. In case of a home construction loan, if the home is not constructed within 5 years of applying for the loan, the borrower will not be applicable for tax exemption.
    • The difference in down payment: In case of a normal home loan, down payment is 10 to 20% of the value of the property. In case of a home construction loan, the down payment to be made is 25% of the property value.
    • Difference in interest rates: The interest rate in case of a normal home loan is higher than that of a home construction loan.
     

    Interest Rates:

    Leading banks offer home construction loan at affordable and competitive rates of interest. Usually, the Interest rate applicable is based on the respective bank’s Retail Prime Lending Rate (RPLR). This fluctuates from time to time and is primarily dependent on the money market conditions.

    The standard tenure of this type of loan usually ranges from 1 to 30 years, though it may vary from each bank.

     

    Eligibility Criteria:

     

    The standard eligibility criteria for availing a home construction loan are as follows–

    1. You can apply for a home construction loan either individually or jointly. All the proposed owners of the property have to be co-applicants.
    2. All the co-applicants need not be co-owners of the property.
    3. Both salaried and self-employed individuals are eligible for this loan.
    4. Not only citizens of India residing in the country are eligible, but some banks also offer home construction loans to NRIs. The documents required for the latter may vary from that of the former.

    Usually, most banks also have eligibility criteria based on the following factors -

    1. Age
    2. Educational Qualifications
    3. Number of dependants
    4. Stability and volume of income
    5. Repayment capacity
    6. Income of co-applicant
    7. Volume of assets and liabilities

    Documentation Required:

     

    The standard documents required for Home Construction Loan have been listed below. Please note, that some additional documents required may differ from one bank to another.

    1. Proof of identity - This needs to be government issued identity proof like PAN card, Aadhar card, valid passport, Voter ID card
    2. Proof of income – latest form 16 and IT returns, salary slip of last 3 months, bank statement of last 6 months
    3. Proof of residence - Rental agreement, electricity bill, PAN card, passport.
     

    Tax Benefits:

    You can enjoy maximum tax benefit under the Home Construction Loan scheme. Though it may vary from one bank to another yet in a standard scenario, as per the current IT Rules, an exemption u/s 24 is Rs. 1.5 lakhs (this is for the interest amount paid in a financial year) and up to Rs. 1 lakh if the principal amount is also repaid in the same year. So, an amount of up to Rs. 2.5 lakhs is eligible to enjoy tax exemption. This can help you save approximately up to Rs. 70,000 of taxes, annually.

     

    Frequently Asked Questions (FAQs):

     

    1. How does the applicant apply for a home construction loan?

    The applicant is required to meet the loan adviser and fill out an application. In addition to it, the applicant must select the best construction option for him or her.

    2. What is the difference between construction loan and permanent loan?

    An application for construction loan is solely submitted for covering the cost of construction of a home whereas an application for a permanent loan is submitted when a mortgage or a sum of borrowed money is to be paid off.

    3. When can the borrower start paying the principal amount and interest payment?

    The borrower can start paying the principal amount and interest once the loan is converted from a construction loan to a normal one.

    4. Do banks allow the applicant to be the general contractor or builder?

    No. Generally, the banks do not allow the applicant to be the contractor or builder.

    5. Can a home construction loan be locked?

    The locking of a home construction loan varies from bank to bank.

    6. Can the financial institution from which the loan is applied for fund the deposit to the builder?

    The funding of deposit to the builder will be provided by the financial institution or not depending on the terms of the loan, and if the financial institution’s policy permits.

    7. Is it mandatory for the applicant to insure the home before applying for a home construction loan?

    Yes. The applicant must ensure that the home is insured when applying for a home loan construction.

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    Home Construction Loans Reviews

    • HDFC Limited Home Loan
      "Very good"
      0.5 4.0/5 "Great!"
      I am satisfied with loan amount of 8L with the rate of interest is 8.65% , EMI amount is 6769 rupees and tenure is 20years. It was taken last two years back from HDFC LIMITED and their overall service is good but I would like close this loan after 3 to 4 months.
      Was this review helpful? 0
      , new delhi
      Reviewed on Apr 17, 2019
    • Axis Bank Home Loan
      "Process is good"
      0.5 5.0/5 "Blown Away!"
      My home loan is with Axis Bank and the process to get the loan is good. The disbursement happened on time and the customer support and response is good. The documentation was also a smooth process. The rate of interest and processing charges is normal.
      Was this review helpful? 0
      , chennai
      Reviewed on Apr 17, 2019
    • IDBI Home Loan
      "Average service"
      0.5 3.0/5 "Satisfactory"
      I took housing loan with IDBI bank for an while, the loan amount which they have given me was good, it was sufficient based on my requirement, the rate of interest and their processing fee which they have charged me was nominal, AS it is government bank their service is not that up to the mark, but the interest rate was less so i applied.
      Was this review helpful? 0
      , mumbai
      Reviewed on Apr 17, 2019
    • LIC Housing Home Loan
      "Interest rate should be reduced"
      0.5 4.0/5 "Great!"
      LIC housing is good but interest is the concern, I took the amount Rs. 20 lakhs for 20 years. They quoted 10.8% its a floating one, they didn't revise the interest as per the RBI guideline. But they do have balance transfer, part payment and other options.
      Was this review helpful? 0
      , chennai
      Reviewed on Apr 17, 2019
    • Aavas Financiers Limited Home Loan
      "Very good"
      0.5 4.0/5 "Great!"
      My experience is good with Aavas finance home and It was taken one year back. My loan amount is 10L and rate of interest is 8.35%, am paying emi amount is Rs.11,648. Recently one month back my emi amount got decreased and I paid only 9441 rupees. The tenure is 20years and everything is nominal with this loan.
      Was this review helpful? 0
      , palanpur
      Reviewed on Apr 17, 2019
    • LIC Housing Home Loan
      "Avrage"
      0.5 3.0/5 "Satisfactory"
      I have taken one home loan from lic housing finance last 3years back , and my loan amount is 10L and tenure is 15years ,emi amount is 10700K and rate of interest is 9.5% is high , and their customer service is good , and response is also good, But I am not much happy with this loan,
      Was this review helpful? 1
      , hyderabad
      Reviewed on Apr 16, 2019
    • Punjab National Bank Home Loan
      "Part payment option is good"
      0.5 4.0/5 "Great!"
      I have my home loan also with Punjab national bank. The customer support is good and there are no hassles in the process. The interest rate and processing charges are nominal. The best about this bank is there is a part payment option so I close my loan at any time without any charges.
      Was this review helpful? 0
      , new delhi
      Reviewed on Apr 16, 2019
    • Tata capital Home Loan
      "Excellent services"
      0.5 5.0/5 "Blown Away!"
      It was a pretty smooth process with Tata capital for the home loan. The customer services are good and they were responsive through the process. The rate of interest is 8.35% fixed for seven years. After which the interest rate would be as per the RBI rule. The processing fee was normal, it is of 5 to 10K.
      Was this review helpful? 1
      , pune
      Reviewed on Apr 16, 2019
    • HDFC Limited Home Loan
      "GOOD"
      0.5 5.0/5 "Blown Away!"
      The documentation process was easy and quick and HDFC LIMITED have given the good loan amount which was satisfactory. The rate of interest was nominal and it is floating, duration is for 2-3 years for repaying the loan, it has been closed before nearly 10 years.
      Was this review helpful? 1
      , vadodara
      Reviewed on Apr 16, 2019
    • Punjab National Bank Home Loan
      "Should be flexible and customer friendly"
      0.5 3.5/5 "Pretty good"
      I am not convenient with PNB housing, for everything I need to visit to the bank even if I want to check the outstanding I need to walk in. I suggest it would be great if they upgrade their technology, the bank staff are not responsive. But the interest rate is better, I took the amount of Rs. 10.5 lakhs for 15 tenure, in a year only once I can do the part payment its not flexible.
      Was this review helpful? 0
      , chennai
      Reviewed on Apr 15, 2019
    • HDFC Limited Home Loan
      "GOOD"
      0.5 4.0/5 "Great!"
      I am using the housing loan with the HDFC LIMITED from last 3 years. The documentation process was simple and fast with this institute. The loan amount was good and also the rate of interest was nominal. The duration for repaying the loan is for10 years.
      Was this review helpful? 0
      , navi mumbai
      Reviewed on Apr 15, 2019
    • ICICI Bank Home Loan
      "Best Experience"
      0.5 4.0/5 "Great!"
      ICICI gave me the long tenure of 15 years for the housing loan, they gave me best interest around 8.5% now it got revised to 8.8% for the loan amount of Rs. 30 lakhs, Based on the property my loan was pre sanctioned, the documentation was simple without too much of paper work.
      Was this review helpful? 1
      , thane
      Reviewed on Apr 15, 2019
    • ICICI Bank Home Loan
      "Good process and service"
      0.5 5.0/5 "Blown Away!"
      My home loan is with ICICI Bank. The services are excellent. I got a proper response and the paper work was taken on time. I did not face any inconvenience. The rate of interest and processing charges is nominal too. The after loan service is good.
      Was this review helpful? 1
      , mumbai
      Reviewed on Apr 15, 2019
    • HDFC Limited Home Loan
      "Best service "
      0.5 5.0/5 "Blown Away!"
      I have taken home loan through HDFC LIMITED . I am happy with their services considering the loan experience. The tenure period is fair enough . The Application process was smooth and the loan amount was credited to my account with in few days. Rate of interest is nominal .
      Was this review helpful? 0
      , ghaziabad
      Reviewed on Apr 15, 2019
    • IDBI Home Loan
      "AVERAGE"
      0.5 3.0/5 "Satisfactory"
      I have applied for the IDBI BANK housing loan and they have given the rate of interest which was higher than others which they need to decrease. The process was quick and they have given the satisfactory loan mount. The duration for repaying the loan is 20 years.
      Was this review helpful? 0
      , bangalore
      Reviewed on Apr 15, 2019
    • Tata capital Home Loan
      "Very good experience"
      0.5 4.0/5 "Great!"
      I have taken home loan from Tata Capital , they gave me the interest around 9% its a floating one. Initially my interest was 8.35% but within six months of time they reversed the higher interest. Anyway the process was easy. The field executive came to my place and collected the paper for the verification, it was simple. I got the loan amount within 8 months.
      Was this review helpful? 0
      , pune
      Reviewed on Apr 15, 2019
    • Bank Bazaar Home Loan
      "good "
      0.5 4.0/5 "Great!"
      Good and fast service. Still have to decide what exactly is the outcome of this application but so far so good. If I really receive the amazon money then will definitely recommend this place to all my near and dear ones, friends and colleagues.
      Was this review helpful? 0
      , jaipur
      Reviewed on Apr 13, 2019
    • SBI Home Loan
      "Good service"
      0.5 4.0/5 "Great!"
      My housing loan was taken with STATE BANK OF INDIA .My home loan experience was good with SBI, the loan amount was based on my requirement and the rate of interest was nominal,it use to float on based on market rate, now i have check their interest is up to 8.7%, the process on getting loan was simple and quick.
      Was this review helpful? 2
      , hyderabad
      Reviewed on Apr 13, 2019
    • ICICI Bank Home Loan
      "very good"
      0.5 4.0/5 "Great!"
      Recently I took one home loan from ICICI bank last fifteen days back , and I am satisfied with loan amount but rate of interest is little high and processing fee was nominal ,and my 8years tenure ,their customer service is good and response is also good ,
      Was this review helpful? 0
      , hyderabad
      Reviewed on Apr 13, 2019
    • SBI Home Loan
      "Satisfactory"
      0.5 5.0/5 "Blown Away!"
      My home loan is with State Bank of India. There were no hassles in the process. The documentation process is good. The rate of interest and processing charges is also fine. The after loan services are good too. It has been a good process and I got the loan on time.
      Was this review helpful? 1
      , new delhi
      Reviewed on Apr 13, 2019
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