While there are options to borrow funds to purchase a ready-to-move-in house or booking an under-construction property, an individual seeking a house can also choose to avail home loans to get a house constructed on a plot, as per their preference. These kinds of loans are known as construction loans that are given out by all leading financial institutions in India.
However, many might tend to confuse these loans with the plot loans, it is right to set it straight that it isn’t. Then what are these home loans? How can one avail them? What are the documents required? To find answers to these questions, continue reading the article below!
Alongside the different pricing, these loans also vary in terms and conditions, repayment tenure, the approval process, and disbursement of a construction loan when compared to the regular housing loans.
What Are The Documents Required To Avail A Home Loan?
Listed below are the documents that are required by an individual to get apply for a home loan:
- The regular ‘know your customer’ or the KYC
- Various income documents
- All relevant documents in order to establish the title and ownership of the plot of the land
Note – The plot of land could either be a freehold plot, one that is allotted by a development authority such as CIDCO, DDA, etc, or leasehold land.
- A No- encumbrance certificate pertaining to the property
- An exhausted plan and layout of the proposed house, approved by the local municipal authority or gram panchayat.
- An estimate of the cost of construction, certified by a civil engineer or an architect
What Is The Margin Money That A Borrower Needs To Contribute Towards The Construction Of The House?
Like the other home loans that are available in the market, in a home loan a borrower will be required to contribute the “margin money” towards the construction of the house as per the loan amount of the home loan.
In the calculation, the cost of the plot is also taken into account if the same has been purchased in recent times. Nonetheless, the value/cost of the plot is not included in the calculation while computing your contribution, if the same has been inherited, is received as a gift, or if it was purchased long back.
What Is The Disbursement Of A Home Construction Loan?
The disbursement of the loan is done in parts and is released on the basis of the progress of the construction, as followed when an under-construction flat is booked with a developer. Nevertheless, a lender does not disburse any money until one contributes as agreed and also provides the same.
In order to avail of the disbursements from the bank, one will require to submit photographs of the house along with the certificates from an architect or civil engineer concerning the stage of completion of the house. Here, the lender would rely on the certificate and photographs or decide to depute their own technical person to verify the same. In simple words, if the construction gets completed quickly, the disbursement of money by the lender will be done quicker.
Note – There are various lenders such as the SBI, HDFC Ltd, ICICI Bank, etc. are noticed to be active in the construction loan segment. However, not every lender who provides home loans will provide construction loans as lenders are not comfortable funding such self-constructed properties.
How To Get A Home Loan From Bank?
1) SBI Bank
SBI, the public lender offers a ‘Realty Home Loan’ for the construction of a house to those who avail loan from the bank. They also finance loans for the construction of the house on a plot under the SBI Realty.
The ones opting for the loan must ensure that the construction of the house takes place within five years from the date that is sanctioned for the loan and the maximum amount offered ranges up to Rs 15 crores, with a repayment period of 10 years.
2) HDFC Bank
HDFC, the private lender also gives out loans for home construction on all three; freehold, leasehold plot, and/or plot allotted by development authority. At present, the bank offers construction loans at 6.95% provided the borrowers meet the conditions to get the best interest rates on the construction loans.
Note – The plot loans offered by HDFC are a different product altogether. The rate of interest on these plot loans varies from the home construction loans with different paperwork altogether.
To Conclude: Key Points To Remember
Borrowers should be mindful that not all lenders provide construction loans in this category. This is why one must make sure to cross-check with the bank’s website if they offer home construction loans before proceeding with the application in the nearest bank branch.
Also, the borrowers must be aware of the fact that the banks do not disburse the entire loan amount in one go and would provide the money in tranches as per the progress of the construction work.
Home Loan FAQs:
1. What is a home construction loan?
A home construction loan is where a borrower can avail of home loans in order to get their house constructed – by themselves or by employing a contractor.
2. How to apply for a home construction loan?
There are many leading bank lenders such as SBI, HDFC Ltd, ICICI Bank, etc. who are active in the home construction loan segment. However, not all lenders that provide home loans offer home construction loans.
3. How is construction loan disbursed in phases?
The disbursement is done in parts as the money releases on the basis of the progress made in the construction of the plot. This process is quite similar to the process that is followed when an under-construction flat is booked with a developer.
4. What are the qualifications for getting a construction loan?
Generally, the requirements vary from lender to lender. However, mostly the qualifications of a home construction loan require a credit score of 680 or higher, a down payment of up to 30%, and debts to no more than 45% of your income.
