A construction loan or what is popularly known as a self-build loan is a loan taken for the construction of any real estate project or house. This house construction loan is generally a short-term loan. When the long-term finance has been approved, the homeowner or the constructor of the project should move towards the house construction loan or plot and construction loan to cover the cost of the building. Since this type of loan is at high risk, the home construction loan interest rates are much higher than the usual loans. The contractors or homebuyers willing to have a customized property are the ones who usually go for a construction loan. A borrower can opt for refinancing of the construction loan by converting it into a permanent mortgage or get an ‘end loan’ which is a new type of credit for paying the loan after the completion of the construction.
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Benefits and Features of Home Construction Loan
Longer Terms
The home construction loans usually come with long tenures ranging from 5 to 30 years which means that the burden of EMIs is quite reduced for the borrower.
Taxation Benefits
Under sections 80C and 24B, one can claim tax benefits on the interest and principal amount of the home loan. Moreover, first-time buyers get additional tax benefits.
The Facility of Transferring the Balance
Most of the banks provide the borrower with a balance transfer facility in which the borrower is eligible to transfer the remaining home construction loan amount to other banks if they find the interest rate to be higher than the market.
Home Construction Top-up
You can get a home construction top-up on the current loan amount for additional construction if you fulfill the eligibility criteria of the bank to get the top-up.
The Eligibility Criteria for a Construction Loan
- To avail a home loan, a person should be between 18 years to 70 years of age.
- Home construction loans can be availed by both salaried and self-employed individuals.
- To get a construction loan, a CIBIL score over 750 is considered to be ideal.
- NRIs and Indian residents can apply for a home construction loan.
- A person should earn a minimum of ₹25,000 to avail of the home construction loan.
Documents required to Avail a Construction Loan
- Aadhaar Card, PAN card, Driver’s License, or Passport as proof of identity.
- Aadhar Card, Passport, or any Utility Bill as proof of address.
- Income Tax Returns, Salary Slips of the last three months or bank statements to prove your income source.
- The title deed of the property, encumbrance certificate, or property plans is approved by the local authorities.
Important Real estate Terms You Should Know
| Benami Property Transaction Act | What is Benami Property Transaction Act |
| Balloon Payment | What is Balloon Payment |
| Bare Shell and Warm Shell | What is Bare Shell and Warm Shell |
| Capital Gains Tax | Capital Gains Tax |
| Common Areas in Apartments | What is Common Areas in Apartments |
| Commencement Certificate | What is Commencement Certificate |
| Carpet Area | What is Carpet Area |
| Brownfield Project | What are Brownfield Project |
| built-up-area | What is built-up-area |
| Debt to Income Ratio | What is Debt to Income Ratio |
FAQs
How much loan can I get for home construction?
The home construction loan amount depends on the borrower’s income.
Where can I get a home construction loan?
You can consult any bank or financial institution to get a construction loan
What are the current construction loan rates?
The current construction home loan rates fall between 6.5% – 7%.
Can I get a home loan for an under-construction property?
Yes, you can avail of a home loan for under-construction property.
Can I get a loan to buy land and build a house?
Yes, there are specific types of loans that can be availed for buying the land and building a house.
