How To Secure A Loan For Home Construction?
Loan For Home Construction- You can utilise home loans to get a house built on a plot in addition to borrowing money to buy a ready-to-move-in home or reserve a property that is currently under development. These loans, which are frequently referred to as construction loans, are offered by all of India’s top financial institutions.
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Also keep in mind that mortgages for new construction differ from mortgages for existing homes and loans for land. These three separate loan types have varied terms and conditions in addition to different prices. Additionally, the repayment tenure varies. A construction loan is approved and disbursed in a somewhat different manner than a typical home loan.
What is a loan for home construction?
A residential property can be built with the help of a home construction loan, which can be used for either personal or investment purposes. A loan of up to 100% of the construction value and a maximum of 90% of market value can be obtained through a home building loan. This loan typically forms a portion of a mortgage.
Loan for home construction: Eligibility
The following requirements must be met by the applicant in order to be approved for a loan for home construction:
- 18 to 65 years of age.
- Must be an Indian or an NRI, depending on where you live.
- Employment: Salaried and self-employed people.
- Credit score: above 750.
- Minimum monthly income of Rs. 25,000.
Necessary Documents
You must provide the potential lender with all necessary documentation proving your ownership of the property in order to be approved for a home loan to build a house on a plot of land you own, in addition to the standard “know your customer” (KYC) and income documents. The land parcel may be freehold or may have been assigned by any development authority, such as CIDCO, DDA, etc. If the lease is for a sufficiently long duration, you can also apply for a loan on leasehold property. A certificate of no encumbrance with regard to the property must also be submitted.
You must provide the proposed house plan and layout, fully approved by the neighbourhood municipal body or gramme panchayat, in addition to the documentation for the site. Additionally, you will need to provide a construction budget that has been approved by an architect or civil engineer. If the lender is pleased with your general eligibility and the cost estimate you provided based on these documents, it will issue the house loan subject to the customary terms and conditions.
Margin capital
Depending on the size of the home loan requested, the borrower will be required to contribute the margin money to the building of the house, just like with any other home loan. If the plot was recently purchased, the price of the acquisition is also factored into the calculation of your contribution. However, if you inherited the plot, received it as a gift, or bought it years ago, it’s worth or cost is not taken into account when calculating your contribution.
Transfer of the loan funds
Similar to how an under-construction flat is reserved with a developer, the construction loan is disbursed in stages and the amount released depends on how quickly the building is going. But before you bring in your own contribution as promised and present proof of it, the lender won’t release any funds. You must submit pictures of the house or certificates from an architect or civil engineer stating the stage of construction of the house in order to get disbursements from the bank.
The lender has two options for verifying the certificate and photos you’ve provided: it can depend on them or send one of its own technical representatives. As a result, the lender will disburse funds more swiftly if the development is finished quickly. Leading lenders are involved in the construction loan market, including SBI, HDFC Ltd, ICICI Bank, and others. However, not all lenders who offer home loans also offer loans for building. Some lenders are hesitant to finance such self-built dwellings.
Home construction loan from HDFC
Additionally, private lender HDFC offers loans for building homes on freehold, leasehold, or development authority-allotted lots. To receive the best rate on construction loans, the borrowers must fulfil a number of requirements.
It should be noted that loans for home construction are different from loans for land. Plot loans are a distinct product at HDFC. Loans for land have different interest rates than loans for building a house. The two loan applications’ associated paperwork differs as well.
SBI constructing loans for homes
‘Realty Home Loan’ is offered by public lender SBI for building homes. You may potentially be eligible for a loan to build a house on a plot that is funded by SBI Realty. It is the responsibility of the borrower to ensure that the house is built within five years of the loan’s approval date. The highest loan amount that can be given to a consumer is Rs 15 crore, with a 10-year repayment period.
Things to keep in mind
It is important for borrowers who intend to obtain a construction loan to be aware that not all lenders offer loans in this category. Therefore, before visiting the bank’s nearest branch, check the bank’s website to see if it provides constructing loans. Another thing that potential borrowers should be aware of is that banks may not distribute the entire loan amount at once, but rather may do so in installments, depending on how well the construction project is going.
Prior to submitting a loan application
Calculate the EMI: Those who apply for house loans must pay an EMI, which is made up of the principal and interest. Calculating the EMI that must be paid and comparing it to one’s income is essential. Such an assessment aids in determining the borrower’s ability to repay the loan given his current income.
Interest rates: There are various loan types, and each has a unique interest rate. The interest paid increases with the length of the tenancy. So that they may repay the loan without incurring any debt, the individuals should carefully select the appropriate tenure and interest rate.
The ideal organisation: There are several financial organisations that offer loans for buying or building a new home. It is crucial for people to select a safe and reliable institution in order to have their loans approved.
Construction loan vs home loan
| Home loan | Construction loan |
| A home loan is a loan taken out to buy or build a home. | A construction loan is one that is used to build a house. |
| Maximum loan tenure is 30 years | Maximum loan tenure is 10 to 15 years. |
| The lender deposits the entire loan amount into the borrower’s bank account after loan approval. | The money for the building loan will be transferred by the lender in installments. |
| Documents including income tax returns, property records, and KYC documents are needed to apply for the loan. | The documents needed for house loans are among the ones needed to apply for the loan. Additionally, a construction blueprint that has been approved by an architect and consent from the Municipal Corporation must be submitted. |
| Interest rates are typically lower than those for a loan for building a house. | Due to the limited availability of these loans, interest rates tend to be higher. |
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