What is a home construction loan?
A home construction loan, also known as a home construction loan, is a loan taken out to enable you to build your own property from scratch. It is different from a home loan because it seeks funds to finance the construction of a property rather than the purchase of an existing, fully constructed property. You should do your research and make sure you have all the information before deciding which loan to apply for, as some banks have programs that may benefit certain groups of people. For example, several banks offer special interest rates if the loan applicant or at least one of the co-applicants is a woman.
Home construction loans have certain advantages, including low interest rates, large loan amounts, long tenors, flexible repayment options, fast disbursement, tax benefits, and a clear and transparent application process. . However, this process also requires more documentation than a home loan to purchase an already built property, as you will need the necessary approval from the municipality and other relevant authorities.
You can usually qualify for a loan amount equivalent to at least 75% of the market value of the property if you have a home construction loan. However, the actual amount and other conditions will depend on the assessment of your individual request. If you maintain timely repayments of your EMI loan, you can also apply for and obtain approval for a home loan supplement.
It is important to remember that since you are building a property from scratch, you will likely have to endure more paperwork and obtain the required permits from the relevant authorities such as the municipal corporation. You will also likely need to retain the services of a lawyer to ensure that you comply with legal regulations.
Characteristics of the loan for the construction of a house
- Quick and significant penalties
- Flexible repayment options with longer occupancy periods
- Low interest rates, below 10%
Interest rates on a home construction loan tend to be quite low and are usually below 10%. Most banks these days have websites where you can find an interest rate calculator. If you enter your credit score and details about your occupation, you can instantly get a rough idea of the interest rate you would pay on a home construction loan, if that bank grants you one.
Significant penalties and long tenure
If you qualify for a home construction loan, you may be approved for up to 80% of the market value of the property in some cases. In addition, you can get a long tenure of up to 15 years. These benefits make a home construction loan a feasible option if you want to build a property from scratch for residential or investment purposes.
You will need to be either an Indian citizen or an NRI (Non Resident Indian) to apply for a home construction loan. Your age must be between 21 and 65 years old. You will need to be employed or self-employed with relevant documents that may indicate proof of income.
To apply for a house building loan, you will also need to provide proof of residence in India, either for permanent residence or for a rented residence where you have stayed for at least one year. Finally, when granting a home construction loan, banks will look for a strong credit rating, usually a CIBIL score above 700 at least.
In general, to apply for a home construction loan, you will need proof of identity, proof of residency, proof of income, property documents and any other document depending on your situation. The financial documents you need to provide vary depending on whether you are an employee of a registered business or self-employed.
While an employee only needs to show 6 months payslips and provide their tax return for the past year, you will need to provide additional documents if you are self-employed, especially if you own a business. Not only will you have to provide the bank statements of your professional account for the last 6 months, but also the bank statements of your individual savings account. Additionally, you will need to provide the business entity’s tax returns and balance sheets for the previous three years, and these documents must be approved by a certified CA.
Finally, since you are building a property from scratch, you will need to provide a plan of the potential property that has been approved by an architect. In addition, you will have to contact the municipal corporation and have them also sign your plans. Only after you have provided all the documents required to prove that you have the necessary authorization, your home construction loan will be sanctioned.