BASIC TEAM
6 mins read
Last updated on 12th April 2024
Building your dream home is a significant milestone in anyone's life. In India, home construction loans have become a popular choice for individuals who wish to construct their houses from scratch. These loans offer the flexibility to use the funds as per the construction stages, thereby ensuring efficient use of money. The house construction loan is a unique product that helps you cover the costs associated with the construction of your new home.
Table of Contents
- Home Construction Loans in India
- Types of Home Construction Loans
- Interest Rates of Home Construction Loans in India
- Eligibility Criteria for Home Construction Loans
- Top Home Construction Loans in India 2024
- Additional Documentation for Home Construction Loans
- Obstacles in Securing Home Construction Loans in India
Home construction loan interest rates play a crucial role in deciding the cost of your loan. Various banks and financial institutions in India offer attractive interest rates and flexible repayment options to make it easier for individuals to build their dream homes. The house-building loan is designed to suit the specific needs of individuals who wish to construct their house rather than buy a pre-constructed one.
Understanding Home Construction Loans in India
A Home Construction Loan is a specific type of Home Loan that allows you to finance the building of your own home, as opposed to purchasing an already constructed house. As the construction progresses, the lender disburses the money in stages, aligning with the demand of each construction phase. To apply for a home construction loan, you must provide the lender with a detailed construction timetable, a comprehensive construction plan, and a realistic budget for construction.
In India, banks and financial institutions offer home construction loans to assist individuals in constructing residential property. These loans come with attractive interest rates, simple documentation, and flexible repayment schemes. Some of the banks that offer home construction loans include the State Bank of India, HDFC Bank, Canara Bank, PNB Housing Finance, Aditya Birla Housing Finance, Bank of Baroda, and Federal Bank. The interest rates vary from bank to bank, with some offering as low as 6.85% per annum.
Suggested read: Home Loan Eligibility For Self-Employed
Types of Home Construction Loans
There are three main types of home construction loans:
- Self-Construction Loan: If you own a plot and need funds to construct a home, you can opt for a self-construction loan.
- Plot + Construction Loan (P+C loan): If you don't own a plot and require funds to purchase the plot as well as to construct a home on it, then a Plot + Construction loan would be the best-suited product for you.
- Home Extension / Renovation Loan: If you need funds to build an extra floor or add a new room to your existing home, or if you are looking to carry out major repair works in your home, you can avail of a home extension or home renovation loan options.
Exploring the Home Construction Loan Interest Rate in India
In India, various banks and financial institutions offer home construction loans at competitive interest rates. These loans are designed to assist individuals in constructing residential property. Here are some examples of the interest rates offered by different banks:
| Bank | Home Construction Loan Interest Rate |
| State Bank of India | 6.95% p.a. |
| HDFC Bank | 7.35% p.a. |
| Canara Bank | 6.90% p.a. |
| PNB Housing Finance | 9.25% p.a. |
| Aditya Birla Housing Finance | 9.00% p.a. |
| Bank of Baroda | 6.85% p.a. |
| Federal Bank | 8.15% p.a. |
These rates are subject to change and may vary based on the borrower's credit profile, loan amount, and other factors. It's always advisable to check with the respective banks for the most accurate and up-to-date information.
Eligibility Criteria for Home Construction Loans
1. Age
- The applicant should be at least 18 years old.
- The maximum age limit is 65 years.
2. Resident Type
- The applicant can be a Resident Indian or a Non-Resident Indian (NRI).
3. Employment
- Salaried individuals should have at least 1 year of experience with their current employer.
- Self-employed individuals can be Self-Employed Professionals (SEP) or Self-Employed Non-Professional (SENP).
4. Residence
- The applicant should have a permanent residence or a rented residence where he/she has resided for at least 1 year.
5. Credit Score
- The applicant should have a good credit report with a score of at least 750 or more.
- Documents Required for Home Construction Loans
6. Proof of Identity
- Valid identification documents
- Aadhaar Card
- Voter ID Card
- Valid Driving License
- PAN Card
- Or a Valid Passport.
7. Proof of Residence
- Documents that prove the applicant's residence
- Aadhaar Card
- Utility Bills
- Valid Passport
- Voter ID Card
- Employer ID Card.
8. Proof of Income
- For salaried individuals: Income Tax Returns and the latest Form 16
- Salary account statements for the last 6 months
- Salary slips for the last 3 months.
- For self-employed individuals: Income Tax Returns and computation of income for the last 3 assessment years
- Balance Sheet and P&L account statements for the last 3 years
- Savings account statements of the applicant and the current account statements of the business entity for the last 6 months.
9. Property Related Documents
- Encumbrance Certificate
- Title Deeds of the Plot, Estimate for construction assessed by a Civil Engineer/ an Architect, and Photocopy of the plan sanctioned by Local Authorities.
Please note that these are general criteria and documents required. The actual requirements may vary depending on the bank or financial institution providing the loan.
Top Home Construction Loans in India 2024
| Lender | Loan Type | Key Features | Interest Rate | Tenure | Lowest EMI per Lakh | Processing Fee |
| SBI | Regular Home Loan | Interest rate concession for women, Zero prepayment charges, Extended repayment tenures | 6.95% p.a. | Up to 30 years | Rs.662 | 0.35% of the loan amount (Min. Rs.2,000; Max. Rs.10,000) |
| HDFC | Home Construction Loan | Available for individuals looking to construct a house, Longer loan tenures, Competitive interest rates | 7.35% p.a. | Up to 30 years | Rs.689 | For Salaried: Up to 0.50% of the loan amount or Rs.3,000; For Self-employed: Up to Rs.1.50% of the loan amount or Rs.4,500 |
| Canara Bank | Home Construction Loan | Available for individuals above 60 years, Available for both salaried and self-employed, with Zero prepayment charges | 6.90% p.a. | Up to 30 years | Rs.659 | Up to 0.50% of the loan amount (Min. Rs.1,500; Max. Rs.10,000) |
| PNB | Home Construction Loan | Extended loan tenures, Simple documentation, Quick processing | 9.25% p.a. | Up to 15 years | Rs.823 | 2% of the loan amount |
| Aditya Birla Housing Finance | Plot & Home Construction Loan | Up to 70 years maximum age at loan maturity for self-employed, Up to 90% of property value provided as a loan, Can be used to purchase a residential plot | 9.05% p.a. | Up to 30 years | Rs.808 | Up to 1% of the loan amount |
| Bank of Baroda | Home Construction Loan | Avail top-up loan on home loan up to 5 times during loan tenure, Up to 90% of property value provided as a loan, Can be used to purchase a residential plot | 6.85% p.a. | Up to 30 years | Rs.655 | Up to 0.50% of the loan amount |
| Federal Housing Loan | - | Loan to value of up to 85% of the property cost, Loan amount of up to Rs.1500 lakh | 8.15% p.a. | Up to 30 years | Rs.744 | Up to 0.50% of the loan amount |
Suggested read: Home Loan with Low Credit Score
Additional Documentation for Home Construction Loans
When applying for a home construction loan, apart from the standard documents, there are additional documents that might be required. Here's a detailed list:
1. Own Contribution Proof:
- This document demonstrates your financial contribution towards the construction of the home.
2. Latest Form 26 AS:
- This is a consolidated tax statement with details of various taxes deducted at source.
3. If you're self-employed or own a business, you may need to provide
- Business Profile: A detailed profile of your business.
- Memorandum and Articles of Association of the Company: Required if your business is a company.
- Partnership Deeds: Required if your business is a partnership firm.
- List of Shareholders and Directors: A list of shareholders and directors, along with their respective shareholdings, certified by a Chartered Accountant. This is required if your business is a company.
- Bank Account Statements: Statements for both the individual and the business entity, including details of any ongoing loans.
4. Processing Fee Cheque
- A cheque for the processing fee is made out to the bank or financial institution.
5. Duly Filled Application Form
- A completed application form, with passport-size photographs of all the applicants/co-applicants attached and signed across.
Please note that the exact documents required may vary depending on the bank or financial institution, so it's always a good idea to check with them directly.
Obstacles in Securing Home Construction Loans in India
Securing a home construction loan in India can sometimes be a complex process. Here are some common challenges borrowers might face, along with potential solutions:
1. Application Rejection
- Problem: Discrepancies in qualifications that don't match the lender’s parameters can lead to application rejection.
- Solution: Confirm the eligibility criteria using a home loan eligibility calculator and other details before submitting your application. Provide accurate information and the necessary paperwork.
2. Higher Interest Outgo
- Problem: Lower EMIs per month can result in a higher overall interest, making your loan more expensive.
- Solution: Use a Home Loan EMI calculator to compare the interest amount for different EMIs. Negotiate for the best possible rates.
3. Insufficient Down Payment
- Problem: Lenders can finance up to 75% - 90% of the property price, but not its entire value. The remaining 10% - 25% must be paid as a down payment.
- Solution: Check lending requirements beforehand and arrange for the necessary down payment to avoid falling short.
4. Legal and Technical Evaluation Issues
- Problem: If legal and technical assessments of the property find anything suspicious, lenders may reject your loan application.
- Solution: Get the property evaluated by experts before applying to establish its market value and estimate the potential loan amount.
5. Failure to Meet the FOIR
- Problem: A high fixed obligation-to-income ratio (FOIR) can make lenders reluctant to extend loans.
- Solution: Ensure that the EMI does not exceed 30% - 40% of earnings for those with a modest salary, and 50% - 60% for high-salaried applicants.
6. Processing Fee Complications
- Problem: Every loan applicant has to pay a processing fee, which may include legal and technical costs.
- Solution: Understand what the processing fee and other additional loan charges entail to factor them into your total credit cost.
7. Title Deeds and NOC Documentation Issues
- Problem: Incorrect paperwork, errors in property details, or forged documents can cause problems during the verification process.
- Solution: Ensure proper documentation, including a No Objection Certificate (NOC) from local authorities, is submitted in the lender’s prescribed format.
Remember, each lender may have their own set of prerequisites that borrowers must fulfill to qualify for a housing loan. Look up the various terms and conditions and the current market trends to make informed decisions.
Navigating the complexities of home construction loans in India can be a daunting task. However, with the right knowledge and understanding, this process can be made smoother and more manageable. This guide aims to provide a comprehensive overview to help you make informed decisions. Remember, the foundation of a successful home construction project is not just the bricks and mortar, but also sound financial planning. As you embark on this journey of constructing your dream home, here's to building not just houses, but homes filled with countless memories and happiness. Happy Home Building!
FAQs About Home Construction Loans in India
Generally, any Indian resident, non-resident Indian (NRI), or person of Indian origin (PIO) with a steady source of income can apply for a house building loan. The applicant should be at least 21 years old at the beginning of the loan and up to 65 years or retirement age at loan maturity.
Home construction loans are typically the best option for house construction as they are specifically designed for this purpose. They offer features like a step-by-step disbursement method and the option to pay only interest during the construction phase.
Yes, you can get a home loan specifically designed for construction. These loans disburse the loan amount in installments based on the construction progress.
Yes, a home construction loan can be beneficial if you want to construct a house according to your design and specifications. It also allows you to pay only the interest component during the construction phase, which can ease the financial burden.
The tenure of a home construction loan can vary based on the lender, but it typically ranges from 5 to 30 years.
Some benefits include step-by-step disbursement of the loan amount, lower EMIs during the construction phase, and tax benefits
Yes, under Section 24(b) and Section 80C of the Income Tax Act, you can claim tax deductions on the interest and principal repayment of the loan, respectively.
For under-construction properties, you usually need to pay pre-EMIs, i.e., the interest on the amount disbursed until the full loan amount is disbursed or until the construction is completed. The principal repayment begins after the full loan amount has been disbursed.
Published on 2nd August 2023
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