People take home loans to build their houses. But the approval and disbursement of such loans differ from traditional housing loans
Apart from buying a ready-to-move-in house or booking an under-construction property, people also take home loans to build a house on a plot. Such loans are also called construction loans and are offered by all reputed lenders in India. The sanction and disbursement of construction loans are slightly different compared to regular housing loans.
Also, note that home construction loans are not like home loans or plot loans. Apart from the different prices, the terms and conditions of these three types of loans are also different. There is also a difference in the repayment period.
The process of sanctioning and disbursement of loans for construction is slightly different from regular home loans.
How To Get A Home Loan To Build A House?
1. Home Construction Loan: What Is the Eligibility?
If you want to take a loan to build a house, then the applicant has to fulfil the following qualifications:
- Age: 18 to 65 years
- Residence Status: Must be Indian or Overseas Indian (NRI).
- Employment: Self-employed or employed
- Credit score: more than 750
- Income: Above Rs 25000 per month
2. Which Documents Are Required?
Apart from the documents proving to Know Your Customer (KYC) and income, you will need to show the documents to the lender to get the house constructed on your land, which will prove your ownership of the land. This land can also be a freehold plot or a plot allotted by a development authority like DDA or CIDCO. You can also get a loan against leasehold land. But the lease should be for a more extended time. You must also submit a “no encumbrance” certificate regarding the property.
Apart from the plot documents, the plan and layout of the proposed house will have to be submitted, which has been approved by the Gram Panchayat or the local body bodies. You will also have to give an estimate of the cost of construction, which has been certified by an architect or civil engineer. Based on these documents, if the lender is satisfied with your eligibility and the cost submitted, it will approve your home loan based on the terms and conditions.
3. Margin Money
The borrower will be required to pay margin money for the building of the house, just as they would with any other home loan. The amount of margin money required will depend on the size of the requested home loan. If the plot were recently acquired, the cost of the property would be included in the total amount you are expected to contribute.
If the land was given to you as part of an inheritance or was a gift, or if you bought it a long time ago, the value or cost of the plot will not be included in the calculation of your contribution, even if it is a significant amount.
4. Disbursement Of The Loan
The disbursement of the construction loan will be done in parts, as the money will be released based on the progress of the construction. The exact process is followed even when you book an under-construction flat with a builder.
No one will give money unless you agree on your contribution and produce proof of that. To avail of the benefit of payment from the bank, you need to submit photographs and certificates of the house to an architect or civil engineer regarding the completion stage of the house.
The lender can either rely on the certificates and photographs submitted by you or entrust one of its technical people to do the verification. Hence, if the construction is completed quickly, the lender will pay the money quickly.
SBI, HDFC Ltd., ICICI Bank, etc., are very active in the construction loan segment. However, not all lenders who offer home loans also offer construction loans. Some lenders are not comfortable giving loans for self-contained properties.
5. SBI Home Loan Rules For Construction
Public sector bank SBI offers ‘Realty Home Loan’ for house construction. You can also borrow to build a house on a plot of land under SBI Realty. Those who are taking a loan should ensure that the construction of the house is completed within five years from the date of sanction of the loan. A customer’s maximum loan amount is up to Rs 15 crore, and the repayment period will be ten years.
Home Loan Rules For Construction
The private sector bank also gives loans for building houses on freehold, plots allotted by any development authority, and leasehold plots. Currently, these private sector banks are offering construction loans at 6.95 percent. However, the customer needs to fulfil several conditions to get the best interest rate on the construction loan.
Note that home construction loans and plot loans are not the same. Plot Loans in these private sector banks are a different product. Rates on plot loans are separate from those on home construction loans. Paperwork is also added to both the loan applications.
Things To Keep In Mind
Customers considering taking out a loan for a building should be aware that not all lenders provide loans for buildings falling into this category.
Therefore, before travelling to the branch that is closest to you, you should examine the bank’s website to see whether they provide building loans or not. Customers need to remember another important fact: banks do not often provide the whole amount of the loan all at once. It is dependent on how far along the building project is.
Consider These Considerations Before Applying For A Home Loan
Before applying for a mortgage loan, you need to think about a lot of things first.
- Calculate the EMI: Customers who apply for a house loan will be required to make a payment to the bank known as an EMI every month. This payment will include both the principle and the interest on the loan. Therefore, compute the EMI you are required to pay and evaluate it in light of your income. When you have this information in hand, you will be able to determine whether or not you will be able to repay the loan with payment.
- Interest Rates: There is a wide variety of credit available from banks, and each loan has its own remarkable interest rate. The amount of interest that must be paid will increase proportionately with the length of time that the loan is held. Therefore, for clients to be able to repay the loan without experiencing any kind of financial hardship, they must choose an appropriate interest rate and term length.
- The Appropriate Organization: Numerous financial firms provide loans to purchase new homes. When applying for a loan, you need to choose a financial organization that is reputable and trustworthy.
Questions That Are Typically Asked (FAQs)
Q: What exactly is a loan for the construction of a home?
People may construct their houses on a parcel of land either by themselves or with the assistance of a contractor by taking out a mortgage loan. Loans of this kind are known as “building loans.” The SBI, HDFC Ltd., and ICICI Bank, amongst other financial institutions, are heavily involved in the construction credit market. However, not all lenders that provide home loans also fund building projects.
Q: How to Make an Application for a Loan to Construct a Home?
You will need to provide the lender, in addition to the paperwork for Know Your Customer (KYC) and income, the documents that will establish that you own the land on which the home will be built. These documents will indicate that you have the right to have the house built there.
Q: How are the portions of construction financing distributed at different stages?
The payout of a construction loan takes place in phases, and the money is distributed according to the stages of development. This procedure is followed even when you book a flat that is still in the process of being built with the developer.
Q: How much of a loan would I be able to receive to construct a home?
A house loan may cover up to 90 percent of the entire value of the property that is being purchased.
Q: Is it possible to apply for home building financing without first needing to make repairs to the property?
If the property has not yet been chosen, but one still wishes to apply for a home construction loan, then one should apply for a pre-approved home loan based on one’s income, credit score, and other factors. If the property has been chosen, the individual can apply for a home construction loan.