Home Construction Loans
What is Home Construction Loan?
A home construction loan is a secured loan that banks and housing finance companies offer to fund building your house, covering material and labour costs. Lenders finance up to 90% of the approved cost, with rates on BankBazaar's partner lenders starting from 7.15% p.a. and tenures up to 30 years.
As per Reserve Bank of India norms, lenders must disburse a home construction loan in tranches linked to the actual stage of construction rather than as a lump sum, so the funds are used for building the house. This stage-wise disbursement is a regulatory safeguard, and lenders typically inspect the site before releasing each instalment.
Under Section 24(b) of the Income Tax Act, you can claim a deduction of up to Rs.2 lakh on the interest paid on a home construction loan, provided construction is completed within five years from the end of the financial year in which the loan was taken; the deduction is capped at Rs.30,000 if construction takes longer.
Home Construction Loan Interest Rates
As per Reserve Bank of India guidelines, the loan-to-value ratio for a home construction loan is capped at 90% for loans up to Rs.30 lakh, 80% for loans between Rs.30 lakh and Rs.75 lakh, and 75% for loans above Rs.75 lakh.
Bank | Interest rate | Best for |
7.25% p.a. | Low Interest Rates | |
7.75% p.a. | Long-term Requirements | |
7.15% p.a. | Low Processing Fees | |
8.50% p.a. | Non-Resident Indians (NRIs) | |
8.60% p.a. | Best for self-employed | |
7.35% p.a. | Best Loan-to-Value |
Best Loans for Home Construction
1. SBI Regular Home Loan
- Interest rate concession for women applicants
- Zero charges on prepayment
- Extended loan repayment tenures
- Starts at 7.25% p.a.
- Up to 30 years
- Rs.682 per lakh
- Processing Fee: 0.35% of the loan amount Min. Rs.5,000; Max. Rs.15,000 for salaried and Rs.18,000 for non-salaried applicants, plus GST)
2. HDFC Home Construction Loan
- Can be availed by individuals looking to construct a house on a residential plot/or a Development Authority allotted plot
- Longer loan tenures
- Competitive interest rates
- Interest rate: starts at 7.75% p.a.
- tenure: Up to 30 years
- Lowest EMI: Rs.716 per lakh
- For Salaried: Up to 0.50% of the loan amount or Rs.4,000, whichever is higher, plus applicable taxes
For Self-employed: Up to1.50% of the loan amount or Rs.5,000, whichever is higher, plus applicable taxes
3. Canara Bank Home Construction Loan
- Individuals above the age of 60 years also eligible for the loan
- Available for both salaried and self-employed borrowers
- Zero prepayment charges on floating-rate housing loans
- Interest Rate: Starts at 7.15% p.a.
- Tenure: Up to 30 years
- Lowest EMI: Rs.675 per lakh
- Up to 0.50% of the loan amount (Min. Rs.1,500; Max. Rs.10,000)
4. PNB Home Construction Loan
- Extended loan tenures for a comfortable repayment period
- Simple documentation and quick processing
- Nominal processing fee
- Interest Rate: Starts at 8.50% p.a.
- Tenure: Up to 30 years
- Lowest EMI: Rs.769 per lakh
- Processing Fee: Up to 1% of the loan amount
5. Aditya Birla Housing FinancePlot & Home Construction Loan
- Up to 70 years maximum age at loan maturity for self-employed individuals
- Up to 90% of property value provided as a loan
- Can be used to purchase a residential plot as well for the home construction
- Interest Rates: 8.60% p.a.
- Loan Tenure: Up to 20 years
- Lowest EMI: Rs. 874 per Lakh
- Processing Fees: Up to 1% of the loan amount
6. Federal Bank Home Construction Loan
- Loan to value of up to 85% of the property cost
- Loan amount of up to Rs.1500 lakh
- Interest Rates: 7.35% p.a.
- Loan Tenure: Up to 30 years
- Lowest EMI: Rs. 689 per Lakh
- Processing Fees: Up to 0.50% of the loan amount
Eligibility Criteria for Salaried
Eligibility Criteria | Requirement |
Age |
|
Resident Type |
|
Employment | The applicant must be salaried and be working under the current employer for at least 1 year |
Residence |
|
Credit score | A good credit report with a score of at least 750 or more obtained from a recognised credit bureau |
Eligibility Criteria for Self-Employed
Eligibility Criteria | Requirement |
Age |
|
Resident Type |
|
Employment |
|
Residence |
|
Credit score | A good credit report with a score of at least 750 or more obtained from a recognised credit bureau |
Documents Required for Salaried
Proof of Identity (any one) |
|
Proof of Residence (any one) |
|
Proof of Income |
|
Property Related Documents |
|
Other Documents |
|
Documents Required for Self-Employed
Proof of Identity (any one) |
|
Proof of Residence (any one) |
|
Proof of Income |
|
Property Related Documents |
|
Other Documents |
|
FAQs on Home Construction Loans
1.What is a home construction loan?
A home construction loan is a loan that banks and housing finance companies in India provide to help you fund the construction of your own house on a plot of land. It covers costs such as building materials, labour and other construction-related expenses. Lenders typically disburse a home construction loan in stages, linked to the progress of construction.
2.What are the types of home construction loans?
Home construction loans are broadly classified as self-construction loans, plot-plus-construction loans, and home renovation or extension loans. A self-construction loan finances building a house on a plot you already own, while a plot-plus-construction loan also finances the purchase of the land. Renovation loans, by contrast, fund repair or extension work on an existing house.
3.How is a home construction loan different from a regular home purchase loan?
A home construction loan is disbursed in stages as your house comes up, whereas a home purchase loan is usually released as a lump sum when you buy a ready property. Because of this staged disbursement, a home construction loan also requires additional documents, such as a construction cost estimate and an approved building plan. Eligibility and interest rates otherwise work much like a standard home loan.
4.Who is eligible for a home construction loan?
Eligibility for a home construction loan depends on your age, income, employment type and credit history, and both salaried and self-employed applicants can apply. Most lenders require you to be a resident or non-resident Indian within a specified age bracket and to hold a good credit score. You will also need to own or have rights to the plot on which the house will be constructed.
5.What documents are required for a home construction loan?
You will need standard identity and address proof, income documents such as salary slips or income tax returns, and property-related papers for a home construction loan. Property documents typically include the title deed of the plot, an encumbrance certificate and a construction cost estimate certified by a civil engineer or architect. Self-employed applicants must also submit business financial statements and related registration documents.
6.Does the bank disburse a home construction loan in stages or all at once?
Most banks disburse a home construction loan in stages rather than as a single lump sum, releasing funds as construction progresses. This staged approach helps ensure the loan amount is used specifically for building the house. Lenders may inspect the site before releasing each instalment.
7.Who can be a co-applicant for a home construction loan?
The co-owners of the property can be co-applicants for a home construction loan, which can help improve your loan eligibility and amount. Adding an earning family member as a co-applicant is common when a single applicant's income alone does not meet the lender's requirement. All co-applicants are equally responsible for repaying the loan.
8.Will I be charged for repaying a home construction loan early?
Whether you are charged for repaying a home construction loan early depends on the bank you have borrowed from and the type of interest rate on your loan. Many lenders do not charge prepayment or foreclosure fees on floating-rate home construction loans taken by individual borrowers. It is best to check your specific loan agreement for the applicable terms.
9.How much can I borrow as a home construction loan?
You can typically borrow a large majority of your property's value as a home construction loan, with the exact loan-to-value ratio depending on the loan amount and the lender's policy. Lenders assess your income, credit score and the estimated construction cost before deciding the final loan amount. A higher credit score and stable income generally improve the amount you can borrow.
10.Can I get a tax benefit on a home construction loan?
Yes, the interest paid on a home construction loan is generally eligible for a deduction under the Income Tax Act, provided the construction is completed within the timeline prescribed by law. Principal repayment may also qualify for a separate deduction. It is advisable to check the current provisions or consult a tax advisor, since tax rules can change.
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