Know All About Composite Construction Loan| Eligibility| Interest | Rates | EMI

Building the home of your dreams is no cheap affair, and most people require financial aid to achieve it. There are several home loan options available, offered by different banking institutions. While the basic procedure for getting a home loan is simple enough, you need to know a few things about the kind of loan you wish to avail of before making a decision.

Specific loans are available, tailored to specific needs: plot loans, construction loans, and loans for purchasing a ready-made property. The following sections will help you learn all about composite loans, offer a comparison of composite loans offered by HDFC, LIC, and SBI, and explain the differences between composite loans and traditional home loans. 

What Does A Composite Loan Mean?

A composite loan is for the people who wish every detail of their new home is personalized and thus, have it made from scratch. The composite loan comprises financial aid for both the plot purchase and the construction. Usually, the loan amount comes with a condition for a designated percentage of the total money you must spend towards the plot and the construction cost, respectively.

For example, the bank can impose a condition that you must use 60 percent of the loan payout for the plot purchase and only the remaining 40 percent for construction. Furthermore, there can be other constraints in the loan agreement, like a set duration within which you must complete the construction. For such reasons, before you apply for the loan, it is prudent to calculate the estimated construction cost.

The Key Features Of A Composite Loan

The key features of a composite loan include the following:

• You can avail of tax benefits on the repayment of a composite loan but you will require a completion certificate to prove the same. Because these benefits can only be availed after the construction is complete.

• You receive the loan payment amount in your personal bank account. However, the document you submit prior will help the bank ensure you use the money only for its intended purpose.

• The whole amount is not given upfront or at once. You receive a sum at first for purchasing the plot, then another to begin construction, and then the rest is disbursed periodically as installments to keep up with the construction expense.

• There is a set period for starting and finishing the construction in your composite loan agreement. In case you fail to adhere to this condition, which usually happens due to factors like unreliable contractors, there can be legal ramifications for you.

• If you take on a composite loan, you will have to construct something over the plot you purchase. The construction is not optional and the bank will make sure you go through with it.

• Non-Resident Indians (NRIs) can also avail of composite home loans in India. Although only a select few banking institutions offer this facility and you must choose accordingly.

• A processing fee is generally levied on your loan application. The fee is variable and depends on various factors. The factors may include bank policy, loan amount, the value of the property, and more.

• Sometimes banks also consider the location of the property as a criterion for approving composite loan applications; the properties located within city limits are preferred.

The Documents Required For A Composite Loan

You shall require the following documents to apply for a composite loan.

• Signed loan application with photograph
• KYC (Know Your Customer) documents
• ID proof (Passport/PAN card/Voter ID card/Driving license/Ration card)
• Address proof (Utility Bill/Ration Card/Letter from Employer).
• Proof of Income Documents
• Bank statements 
• Salary Slips
• Form 16
• Income Tax documents
• Documents related to the property
• Own contribution proof
• Sanction plan  
• Allotment letter or sale agreement

The General Eligibility Criteria

The general eligibility criteria for availing of a composite home loan is being an adult aged 18 to 70, while the exact age can differ according to the bank you choose. The lower limit for credit score required here is 750, the respective bank you choose can have a higher requirement too. However, this is usually preferable.

Furthermore, you must either be self-employed or a salaried employee at the time of applying for the loan. The minimum income requirement can vary according to the bank you choose and the loan amount that you desire.

How Is A Composite Loan Different From A Land Loan And A Construction Loan?

Different loans for construction and plot purchases also exist. A person who is looking to construct a home on a plot of land they already own generally opts for a construction loan. The land could be inherited or previously purchased for investment purposes. A person who may be buying a plot for investment purposes and may not plan on constructing anything over it in the near future generally opts for a land loan.

The composite loan has two parts: land and construction, and both are mandatory. Hence, only someone who wants the land and the construction immediately must apply for a composite loan.

Designing your home from the ground up requires a great deal of planning, and a composite loan offers some relief from the stress of what can feel like a mountainous task. Most major home loan providers offer composite loans. However, the three most popular options are HDFC, SBI, and LIC. Each banking institution has the right to decide its eligibility criteria for the loan, and each also offers different interest rates and EMI options. 

HDFC Composite Home Loan

About the loan

HDFC Bank invites applications from both, individuals, as well as, for joint loans. The bank offers special adjustments and deductions where a woman is an applicant or a joint applicant. The loan is available for salaried employees, self-employed professionals, and self-employed non-professionals. The processing fee varies according to the employment type of the applicant, and the maximum loan amount shall vary according to the total market value of the property. 

Processing Fees

For salaried employees: Up to 0.50% of the loan amount or 3,000 INR.

For self-employed professionals: Up to 0.50% of the loan amount or 3,000 INR.

For self-employed non-professionals: Up to 1.50% of the loan amount or 4,500 INR.

Eligibility

The eligible age limit is from 18 to 65 years.

Interest Rate

8.60% onwards

Repayment tenure

Loan repayment tenure can be up to 15 years

Maximum Loan Amount

Up to 30 lakh INR: 80% of the property value.

31 lakh INR to 75 lakh INR: 80% of the property value.

Above 75 lakh INR: 75% of the property value.

SBI Composite Home Loan

About the loan

The composite home loan offered by SBI, called the SBI Realty Home Loan, is one of the most popular options. The loan offers an interest rate concession for women, levies no penalty on prepayment, and allows both salaried and self-employed individuals to apply. The condition they apply for this loan is that the house construction should begin within 5 years from the date of availing of the first disbursement of the loan. 

Processing Fee

0.35% of the loan amount + taxes, subject to a minimum of 2,000 INR and a maximum of 10,000 INR respectively.

Eligibility

The eligible age limit is from 18 to 65 years

Interest Rate

8.70% onwards

Repayment tenure

Loan repayment tenure can be up to 10 years

Maximum Loan Amount

The maximum loan amount can be up to 15 crore INR

LIC Composite Home Loan

About the loan

The composite loan offered by LIC for the purchase of plot and house construction is granted only on the condition that the applicant starts and finishes the said construction within three years from the date of the purchase of land. 

Another condition that the applicant must adhere to is that 60 percent of the total loan payment must be used for the purchase of land and only the remaining 40 percent amount can be used towards the construction expenses. The two conditions are mandatory, and failure to comply may have legal ramifications. 

Interest Rate

Variable

Repayment tenure

Loan repayment tenure can be up to 30 years

Maximum Loan Amount

75% of the property value

Composite Loan VS Traditional Home Loan

Needless to say, composite loans are somewhat different than traditional home loans. You take a composite loan when you wish to buy a plot of land and build your home on it, while a traditional home loan is for buying already constructed property. 

There are a few more differences between the two that can be classified based on the following factors:

Conditions and constraints

For composite loans, there are conditions and constraints like you have to allocate the loan amount in a predetermined way between the plot purchase and construction work. Whereas in a traditional home loan, you direct the complete loan amount towards one purpose. 

Another constraint that comes with a composite loan is that there is a predetermined duration of time, within which you need to start and finish the construction, which is also mandatory. Whereas, regular home loans are much simpler.

Interest rate

Generally, the interest rates of composite loans are slightly higher than traditional home loans. For example, the interest rates offered by SBI for composite loans are currently over 8 percent, while the interest rates for the regular home loan they offer are under 8 percent.

Maximum loan amount

The loan payment amount for a traditional home loan is paid in full at the time of purchase, sometimes to the homebuyer's personal account, and sometimes directly to the seller. Whereas, the payment for a composite loan's amount is disbursed only in your personal account. 

The payment is also not disbursed all at once, first, the bank releases a sum for plot purchase, then a sum for starting the construction, and then tranches are paid periodically for the ongoing construction work. Furthermore, the maximum loan amount for a composite loan is generally higher than that for a traditional home loan.

Purpose

As mentioned above, the purpose of a traditional home loan is simply to buy a fully constructed property. Whereas, the purpose of a composite loan is to purchase a plot of land and build a customized home over it.  

Repayment tenure

The tenure of both a composite loan and a traditional home loan depends upon the bank that you choose. Although, the general limit of traditional home loan tenure is up to 30 years while that of composite loans is shorter, up to 20 years. There may be some banks that offer a longer tenure, but that is usually not the case. 

Documents required

Due to the very different purposes that they serve, the documents required for applying to a traditional home loan and a composite home loan also differ. Although some basic paperwork like the duly application form, photograph, income and address proofs, etc., is required for both, documents that are related to the property are different for both.

EMI

Since the loan payments for composite loans are typically larger as compared to that of a traditional home loan, and the tenure for repayment is comparatively shorter, subsequently, you can expect higher EMIs for composite home loans than the traditional home loans.

The following table presents these differences at a glance.

The aforementioned is all you need to know to make an informed decision about choosing your composite home loan. The next step will be finding a reliable construction company like Brick&Bolt to take the burden of the construction process off your hands and help you realize the dream of your home. Brick&Bolt is all set to make the construction of your home hassle-free and cost-effective for you.