Home Construction Loans and Its Interest Rates

August 30, 2022

Are you planning to build your dream home? A home construction loan can help make your dream a reality. It is a short-term loan used to finance the construction of a new home. The loan is typically used to pay for the land, materials, and labour needed to build a property. Home construction loans usually have better interest rates than traditional mortgage rates but can often be more challenging to qualify.

Home construction loans are available through banks and financial institutions, including credit unions and payday lenders. A common requirement for getting a loan is that the borrower has some savings or another form of income to cover living expenses in absence of no regular pay.

➡️ Read more about Top Home Loans for 2022

You can use a home construction loan to finance the construction of an energy-efficient home. This helps you save money on utility bills and make your appreciate your home value. If you’re considering a home construction loan, seek and compare the interest rates and terms from different lenders. You can also talk to a financial advisor to get more information about home construction loans.

Features and Benefits

Many people are uninformed that fixer-uppers have become an excellent deal for those with money. Home construction loan programs offer instant and generous credit for homeowners to fix their property without necessarily having to purchase an expensive condominium or a new luxury development. The primary features and benefits of home construction loans are outlined below:

Tax Benefits

Home construction loans can provide excellent tax benefits if you plan to build a new home. A borrower can claim tax exemptions and deductions under section 80 C and section 24 (b) on principal and interest payments, respectively. Talk to your financial advisor for an in-depth understanding.

High-Value Loans

Loan to value ratio is a financial term used by lenders to express the ratio of a loan to the value of an asset. In terms of home construction loans, LTV is the ratio of the loan amount to the value of the property. It is a crucial factor in mortgage lending and can significantly impact the terms of a loan. Usually, banks and NBFCs, offer construction loans of up to 70% to 80% of the property’s value.

Balance Transfer Facility

Balance transfer loans are a type of loan which allow you to transfer the balance of your current loan to a new loan with a lower interest rate. This can save you money on interest charges and help you pay off your debt faster. The majority of lending institutions offer balance transfer facilities on home construction loans.

Top-up Facility

A home loan top-up is an additional loan that can be taken on your existing home loan. It can be used for various purposes, such as home renovations, debt consolidation, or other major expenses. Banks are offering top-ups on their home construction loans to optimize their loan experience.

Best Home Construction Loans

While home construction loans are a healthy financial tool, finding the best home construction loan can be challenging. There are many different lenders out there, each with its own terms and conditions. It can be difficult to compare all the options and choose the one that’s right for you. To clear the clutter, we’ve compiled a list of some of the best home construction loans available. You can easily compare your options and choose the one that’s best for you. Here’s a look at some of the most popular Home Construction Loan providers:

State Bank of India

The State Bank of India (SBI) is the largest bank in India, with over 24,000 branches across the country. It is also one of the oldest banks in the world, dating back to 1806. The bank offers various products and services, from savings and current accounts to loans and credit cards.

Criteria Highlights
Interest Rate 6.95% p.a. onwards
Tenure 30 years

HDFC Bank

HDFC bank is a private Indian banking and financial services company headquartered in Mumbai, Maharashtra. The bank has a strong network of branches and ATMs across the country and provides a wide range of digital banking services.  The bank offers personal banking services like loans, credit cards and other financial products to individual customers. It also provides wealth management solutions through its subsidiaries – HDFC ERGO Insurance Company Limited (HEIC), which is a joint venture between HDFC Ltd.

Criteria Highlights
Interest Rate 6.75% p.a. onwards
Tenure 30 years

HDFC bank offers affordable home construction loans along with balance transfers and a top-up facility. The bank provides home construction loans at a nominal rate ranging from 6.75% p.a.  Additionally, the bank offers a concession of 0.05% on interest rates for women borrowers.

Punjab National Bank (PNB)

Punjab National Bank is a nationalized bank established in 1894. The bank has more than 11,000 branches and over 55,000 employees. PNB provides a full range of banking services to both retail and corporate customers. In addition to traditional banking services, the bank offers credit cards, loans, and investment products.

Criteria Highlights
Interest Rate 9.25% p.a. onwards
Tenure 15 years

LIC Housing Finance Limited

Life Insurance Corporation of India (LIC) is one of India’s oldest and largest insurance companies. LIC is a government-owned company, and it enjoys certain advantages over private life insurance companies. Established in 1989, LIC Housing Finance Limited is a subsidiary of LIC. LICHFL offers affordable home loans to home buyers.

Criteria Highlights
Interest Rate 6.90% p.a. onwards
Tenure 15 years

Eligibility Criteria

The eligibility criteria varies for individuals falling under different categories. They are discussed below:

Salaried Individuals

Criteria Eligibility Criteria
Minimum Age 18 years
Maximum Age 65 years
Nationality Indian and NRI
Credit Score 750 and above
Employment Experience The applicant must work with the current employer for one year.

Self-Employed Individuals

Criteria Eligibility Criteria
Minimum Age 18 years
Maximum Age 65 years
Nationality Indian and NRI
Credit Score 750 and above
Employment Experience Self-employed professional and self-employed non-professional.

 Documents Required

The documents pertaining to home construction loans varies for individuals falling under different categories. They are tabulated below:

Salaried Employees

Criteria Documents Required
 KYC Documents ●     Aadhaar Card

●     Pan Card

●     Passport

●     Voter ID

●     Driving License

●     Utility Bills

Income Proof ●     ITR and the latest Form 16

●     Salary account statements for six months.

●     Salary slip for three months

Property Documents ●     Encumbrance Certificate

●     Title deeds of the plot

●     Estimate for construction

●     Photocopy of sanctioned plan

Other Documents ●     Own Contribution Proof

●     Letter of appointment/employment contract if current employment period is less than 12 months.

●     Account statements indicating loans that have been repaid, if any.

●     Check for the lending institution’s processing fee.

●     All applicants/ co-applicants must submit a completed loan application accompanied with passport-sized photographs.

 Self-Employed Individuals

Criteria Documents Required
 KYC Documents ●     Aadhaar Card

●     Pan Card

●     Passport

●     Voter ID

●     Driving License

●     Utility Bills

Income Proof ●     ITR and the latest Form 16

●     Salary account statements for six months

●     Salary slip for three months

Proof Documents ●     Encumbrance Certificate

●     Title deeds of the plot

●     Estimate for construction

●     Photocopy of sanctioned plan

Other Documents ●     Own Contribution Proof

●     Latest Form 26 AS

●     Business Profile

●     Memorandum and Articles of Association of the Company

●     A partnership agreement if the business entity is established as a partnership

●     A list of company shareholders with their respective shareholdings if the business entity is established as a corporation (certified by a CA)

●     Detailed bank statements of both the individual and business entity indicating any outstanding loans

●     Bank/financial institution processing fee check

●     The application form must be filled out and accompanied by passport-sized photographs of all the applicants and co-applicants.

How Can One Apply for Home Construction Loans?

A thorough analysis is necessary to gauge the financial obligation induced by home construction loans. Individuals can apply for home construction loans in the following way:

Select the Lender

The first step is to find a lender that offers home construction loans. There are many factors to consider when selecting a lending institution for a home construction loan. The most important factors include interest rates, fees, loan terms and conditions, and customer service. It’s important to look around and compare the interest rates and fees from different lenders before deciding.

You should also understand the loan terms and conditions before signing anything.

Customer service is also an important consideration. You should ensure that the lender you choose is easy to communicate with and responsive to your needs. Take your time and do your research to find the best lender for your home loan.

Fill in the Application

Once you’ve found a lender who suits your requirements, you’ll need to fill out the application form. Fill in all the details and attach the documents specified by the lending institution. Make sure you are aware of the terms and conditions of the loan.

Verification Process

Once you submit the application form and the documents, the lending institution will review your application and creditworthiness. Your financial standing and credit score will determine whether or not you’re approved for the loan. You’ll then need to sign a loan agreement once your loan is approved.

Disbursement

Once the loan agreement is in place, the loan will be disbursed, and the construction process can begin. Be sure to keep your lender updated on your progress, as they will need to make periodic inspections. Once the home is complete, you’ll need to make final payments on the loan, and then you’ll be all set!

Conclusion

The very first step to home construction loans is to find a lender that you are comfortable with. The lender that you choose is likely to work with you for years to come, so you want to make sure that they are credible and trustworthy. We hope you enjoyed our article about home loans for construction. With this knowledge, we know that you can make the most of your next home project and do it fast with your own money.

Related Resource
Home Loans For Women
Plot Loans for Land Purchase
Pradhan Mantri Awas Yojana
Home Buying Tips for 2022 
Top Home Loans for 2022

 

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