Home Construction Loan

A home construction loan is a loan taken against the mortgage of the property on which you plan to carry new construction or renovation. For instance, if you plan to expand your house area and build one more floor on your existing property; you can finance the construction of the house by taking a home construction loan.You can take a loan for maximum tenure of 30 years at a best rate of 6.50%.

A home building loan has the following benefits for any borrower who wish to construct a house on his plot or an additional floor on his house:

• Longer tenures: The house building loan is available for long tenures and can range between 5 to 30 years which means that the home loan EMI burden on the borrower is low and the loan is affordable.
• Tax benefit: Like Home Loan, you can claim tax benefit on the principal amount and interest paid on the construction loans under Sec 80C and Sec 24B. Under the Sections, you can claim tax benefit up to ₹ 2 Lakh on the interest and ₹ 1.50 Lakh on the principal amount. The first time buyers can also claim additional tax benefit up to ₹ 50,000 under Sec 80 EE.
• Balance transfer facility: Most of the banks also provide balance transfer facilities on home construction loans as they do on home loans. If you find that the current rate of interest you are paying on loan is higher than the market, then you can opt to transfer the outstanding balance of loans to other banks by paying balance transfer processing fees of up to 1%.
• Home loan top up: You can also opt to take top-up loan as home construction loan on your existing home loan. Banks primarily check your past track record of repaying the home loan to check your eligibility to get additional loan for construction as top up on your running loan. Banks may also charge processing fees for providing home loan top-up in some cases.
• Loan amount: The amount of loan amount you can get for the home construction loan depends on your income and repayment eligibility. You can get construction loans up to 90% of the value of the property. The loan amount can range between ₹ 1,00,000 to ₹ 99,99,99,999. To increase your eligibility of loan amount, you must add a co-applicant for the loan.

To avail the construction loan, you need to have a detailed construction plan about the house, including the materials to be used in the construction of the house. You can get a construction loan if you fulfill the following eligibility criteria:

• Age: The age limit to get a home construction loan is between 18 years to 70 years. However, some banks give loans for construction upto a maximum age of 65 years.
• Profession: Both self-employed and salaried individuals can avail a construction loan. The interest rates are lower for salaried applicants.
• Credit Score: A credit Score of 750 or above is considered an ideal score for availing a construction loan. However, some banks give home loans at a credit score of 650 and above.
• Nationality: Any Indian resident or non-resident Indian can apply for home construction loans.
• Income: The fixed income to obligation ratio cannot exceed 65% of the monthly income. The minimum income required to apply for a home construction loan is ₹ 25,000.

To get a home construction loan, you must get a pre-approval for the construction plan of property and submit the following documents:

• Identity proof: Aadhaar Card, Valid Passport, Voter ID Card, Valid Driving License and PAN Card.
• Address proof: Utility bills, Aadhaar Card, Valid Passport, Voter ID Card.
• Income proof: Income Tax Returns, latest Form 16, Salary account statements for the last 6 months, Salary slips for the previous 3 months. In the case of self-employed individuals, the income tax returns, salary accounts of the previous 6 months need to be submitted.
• Documents related to property: Encumbrance property, title deeds of the property, plan sanctioned by local authorities and estimated construction cost quotation.

✅How much loan can I get for home construction?

You can apply for a home construction loan upto a loan amount of 90% of property’s value. However, the loan amount for construction loan ranges upto ₹ 99,99,99,999. You can also add a co-applicant to increase your loan eligibility.

✅Where can I get a home construction loan?

Major banks such as SBI, Axis Bank, PNB and Citibank provide home construction loans. You can decide about the best bank for a home construction loan based on the interest rates, processing fees, lending process and documents required for availing the loan.

✅Which bank is the best for construction loans?

HDFC can be considered as the best bank for construction loans as it provides loans at the lowest house construction loan interest rate of 6.45%.

✅What are the current construction loan rates?

As on 24 Jan 2022, construction loan rates start from 6.45% rate of interest and range till 20.00% rate of interest.

✅Can I get a home loan for an under construction property?

Yes, you can get a home loan for under construction property. However, the loan amount in such a loan is disbursed in parts, as and when the builder asks for the payment.

✅What credit score do I need for a construction loan?

For easy approval of a home loan for construction of house, you must have a credit score above 700 and for a lower interest rate your CIBIL score should be above 800.

✅How long does it take to get approved for a construction loan?

Loan approval for a construction property takes 10-15 days, though your loan can get approval within a week if you have submitted all the documents correctly.