In addition to availing finance for buying a ready-to-move-in home or booking any under-construction property, you can even get a home loan to get your home constructed on a plot. These loans are commonly known as a construction loans and are offered by all the leading lenders like LRD loan, Bajaj Finserv, IDFC FIRST bank, etc. in India. Also, ensure to be mindful of an important fact that opting for a home construction loan is not the same as a plot loan and a home loan. Besides their distinct pricing, these 3 kinds of loans even have differing terms. Also, there is a difference in repayment tenure. 

The process of approval as well as disbursement of construction is little distinct from that of housing loans in India. 

Loan for home construction requirement – 

Home construction loan – eligibility parameter

For availing a loan for home construction purposes, you as an applicant must ensure to meet the criteria listed below –

• Age – 18 years – 65 years
• Employment – Salaried and self-employed individuals
• Residential status – Indian or NRI (non-resident Indian)
• Employment – Salaried and self-employed
• Credit score – Must have a score of over 750 
• Income – A minimum income equaling Rs 25,000 per month

Required documents

In addition to regular KYC (know your customer) and income paperwork, to get a home loan for home construction on a plot of land, you must provide the lender with the required documents to establish your ownership and title of the plot of land. The land plot can either be any freehold land or plot or may be allotted by a development authority like DDA, CIDCO, etc. You can even get a loan on a leasehold plot, where the lease may be for a considerably longer time period. Also, you will require to provide a no-encumbrance certificate concerning the property. In addition to plot documents, you must also provide a layout and plan of your proposed home, duly approved by the gram panchayat or local municipal authority. Other details that you must submit include an estimate of your construction cost, which must be certified by an architect or engineer. Depending on the document you submit if the lender is satisfied with your thorough eligibility and estimate of cost, it may sanction the loan subject to usual conditions.

Margin money

As with other home loans, you as a borrower must contribute the margin amount towards home construction based on the home loan amount you have requested. While computing your contribution, the plot cost is even factored in. However, the cost or value of the plot is not accounted for while calculating your contribution, in this case, the same has been received or inherited by you as a gift or it was bought long back. 

Loan disbursement 

Disbursement of construction loan may take place in parts, and money must be released based on the construction progress, like the process followed when any under-construction flat is booked with the developer. However, the lender may disburse the money till you provide your own contribution as agreed and offer the same. For getting the bank disbursement, you will require submitting photos of the home and certificates from the civil engineer and architect about the stage of completion of the home. The lender might depend on the certificate and photos submitted by you or it may even decide to place its own technical expert to authenticate the same. So, if the construction is conducted quickly, the money disbursement by the lender may even be faster. 

Lenders like HDFC ltd., SBI, ICICI Bank and others are active in the construction loan category. However, not all lenders that offer home loans provide home construction loans. Few lenders are not comfortable with financing self-constructed properties.  

SBI home loan for the construction process

Public lender State Bank of India provides a realty home loan for the goal of home construction. Also, you can get the construction loan of the house on the plot funded under SBI realty. Those availing loan must ensure that home construction must take place within 5 years from the date on which the credit option has been sanctioned. The maximum loan amount that may be offered to you can go up to Rs 15 crore, with repayment tenure equaling 10 years. 

HDFC home construction loan

Private lender HDFC even offers loans for the construction of homes on freehold and leasehold plots or on plots allotted by the development authority. Presently, the lender is providing a home construction loan at 6.95 per cent per annum. However, you must meet various conditions to get affordable rates on home loan construction loans. 

Note that, a home construction loan is not the same as a home plot loan. At HDFC, plot loan is a distinct product. Plot loan rates are distinct from construction loans. Documents involved in these 2-loan applications are even distinct. 

What are the things you must remember?

If you as a borrower are looking to avail a construction, then you must know that not all lenders offer loans in this specific category. So, review the financial institution’s site first, whether they provide construction loans before you proceed for availing the loan.  Another important point that you as a borrower must be aware of is financial institutions do not process and disburse the entire loan proceeds in a go and may offer you money in tranches, based on the construction work progress. 

What are the important factors that you must consider before placing the application for a home loan?

There are various parameters that you must factor in before you apply for a home loan. 

• Compute the loan EMI 

If you are applying for a home loan, you must ensure to pay loan EMI that consists of principal proceeds and interest rate. It is important for you to compute the EMI you need to pay as well as compare the same with your income. Such an examination assists in understanding whether you as an individual are capable of making loan repayment with your given income. 

• Rate of interest 

There are various types of loans and your interest differs. The higher the repayment tenure you have, the higher the interest you must have. Thus, you as an individual must efficiently select the correct repayment tenure and rate of interest so that you can repay your loan without any stress or burden. 

• The correct institution

There are a number of lenders that offer loans for buying or constructing a home. It is crucial for you as an individual to select a secured as well as credible institution to get your loans sanctioned.