How to Get Home Construction Loan in India | Brick&Bolt

The joy of constructing your dream house is unparalleled. But the increasing construction expenses may make your dream of building a house uncertain. Although people can obtain a home construction loan to build their homes, the approval and disbursement processes differ from those for ordinary home construction loans. In addition to borrowing money to buy a ready-to-move-in house or book a property currently under development, you can use a home construction loan to get a house constructed on a plot. These loans, frequently referred to as construction loans, are offered by all of India's top financial institutions.

However, one should remember that home construction loans differ from home loans and plot loans. These three different loan types have varied terms and conditions and different prices. Additionally, the repayment tenure varies from one loan to the other. In this blog, we will give you all the necessary information regarding home construction loans in India so that it becomes easier for you to apply for a home loan anytime.

Home Construction Loan

A home construction loan is a form of short-term finance that can be used to pay for all the expenses involved in constructing a house. It is a specific kind of loan that enables customers to get the money they need to finance the building of a residential property on a plot of land. Loans for construction may be used to pay for the price of purchasing property, creating blueprints, obtaining permissions, and paying for labor and supplies. If your project costs more than anticipated, you can also use a home construction loan to access contingency reserves or interest reserves if you don't want to pay interest while the house is being constructed.

Advantages of Home Construction Loan

The primary advantages are outlined below:

Tax Benefits: Home construction loans offer great tax benefits if you want to build a new house. The borrower may be eligible for tax exemptions and deductions under sections 80 C and 24 (b) on principal and interest payments.

Instant Equity: One can immediately create equity by constructing a house. If a person invests in a savings plan or fixed deposit, it could take up to 10 to 15 years to build up any equity. However, when constructing a house, they can produce value more quickly and on a greater scale.

Balance Transfer: You can transfer the remaining debt from one form of loan to another with a reduced interest rate by using balance transfer loans. A balance transfer helps to pay off the debt more quickly and saves money on interest fees.

Top-up Loan: An additional loan that can be placed on your current house loan is called a top-up loan. It can be used for various things, such as house renovations, debt relief, or other significant costs. To improve the loan experience, banks are providing top-up loans on their home-building loans.

Documents Required for Home Construction Loan

When applying for a home construction loan, you need to submit some documents to the lender. Specific documentation may be required depending on the applicant's profession, financial situation, and place of residence. The documentation needed for house building loans varies in several ways depending on whether the applicant is salaried or self-employed.

Documents required for self-employed people

Lenders will demand certain documentation from self-employed people to evaluate the profitability and legitimacy of your business. When you're ready to apply for a loan for home construction, you must include the following paperwork:

• Income evidence

• Bank records for the recent six months

• Last three years' Profit & Loss projection statement

• The processing fee cheque was drawn from your business account

• Business proof

• Business commencement registration certificate

• Your company's information on the letterhead

• Income tax returns for the past two years

Documents required for salaried people

Lenders must confirm applicants for salaried positions have a steady source of income and verify their employment with a legitimate public or private organization. Salaried people must therefore produce the following paperwork in addition to the documents mentioned above when applying for a loan for home construction:

• A photocopy of the salary account bank statements for the previous six months is acceptable as proof of income.

• The processing fee cheque was drawn from the salary account

• A copy of the salary slip

• Appointment letter

• Form 16 Salary Slips for the last three months, certified accurate copy

• Annual increment letter

Construction Loan Interest Rates

Like interest rates for other loan kinds, construction loan interest rates typically change depending on the borrower's creditworthiness, size, and loan period. Additionally, the construction loan interest rate is frequently variable, meaning they change throughout the loan based on an index, e.g., the prime rate.

Interest rates typically range around 1% more than typical mortgage rates. Rates for building loans today could range from 7% to 9%. Construction loans are riskier than conventional mortgages because a completed home must secure them.

Eligibility Criteria for Getting a Home Construction Loan in India

Good Credit Score: To lower the risk, lenders set a minimum credit score requirement of 680 for applicants for a house construction loan. However, some lenders could demand a minimum score of 720. Therefore, raise your credit score before requesting a house construction loan.

Age: A person applying for a home loan should be between 18-65 years of age.

Residential Status: One must be an Indian or non-resident Indian (NRI) to apply for a home construction loan.

Employment: Both salaried employees and self-employed individuals are eligible to apply for this loan; however, depending on the applicant's line of employment, there may be lender-specific limitations.

Income: A person applying for a home construction loan must have a minimum income of Rs 25,000 per month.

Plot Plus Construction Loan

A loan for plot and construction is primarily intended for people who plan to buy a plot of land and construct a house in the next few years. This type of loan is given out in several installments. The benefits of this loan are as follows:

This loan is used to purchase a piece of residential real estate.

• Desirable interest rates

• Affordable terms for repayment

• Payment in advance carries no penalty.

• Low processing costs

• Less documentation

• Benefits provided by the Income Tax Act's Sections 24 and 80C

• It is necessary to have a high loan-to-value ratio of nearly 100% of the construction budget or 90% of the property's worth, whichever is lower.

• Facility for balance transfers

3 Important Things to Consider Before Getting a Home Construction Loan

Rate of Interest: A borrower should take into account the interest rate charged on a home-building loan. Before choosing a house construction loan, one must research the current market rates and compare the interest rates provided by various lenders.

Processing Fee: A processing charge is attached to each loan that a lender approves. Processing costs vary among banks and other financial institutions and often run between 0.5% and 1% of the loan amount. One must consider this fee imposed by banks and other institutions because it will raise the overall cost of borrowing.

Tenure: Depending on one's ability to make repayments, one must select a suitable loan term. A longer-term will result in greater interest payments but fewer monthly EMIs. Conversely, a shorter term will have much higher EMIs and may be burdensome for borrowers.

Conclusion:

The price of the raw materials needed for construction has been rising daily. As a result, from a financial perspective, building a house has become challenging. However, you can now meet the monetary requirements and construct your dream home with the help of a lower house construction loan interest rate.

Once your house construction loan is approved, the next essential step is to find the best construction company to construct the home of your desires. This is where Brick&Bolt comes in. We are ranked among India's top construction companies with tech-enabled end-to-end construction services. Our team of experts will help you fulfill all your requirements and meet your construction demands in an affordable, hassle-free, and convenient way. To know more about our service or get a free quote, please get in touch with us at +91 7505 205 205.