Construction loans are one of the many products that banks provide to meet the diverse demands of homebuyers and home owners. A construction loan and a home loan may share certain similarities, but they shouldn’t be mistaken for one another because they are fundamentally different financial products.
To develop a residential property on an area of land, you must obtain a construction loan. A construction loan is distinct from a plot loan in that it aids in the construction of a structure rather than the acquisition of a plot. It differs from a home loan, which is taken out to buy a flat or a flat, in other ways as well. Even though the property you invested in is still being built, the home purchasers obtain a mortgage instead of a construction loan from the bank; your builder must have done so in order to complete the project.
Read More : Popular Smart TV Brands In India
Features of construction loan
1. Construction loans differ from home loans and plot loans in that they are not disbursed all at once. Depending on how the project is coming along, the bank will release funds for the construction in stages.
2. Only the property building’s structural components are covered by a construction loan. Therefore, the expense of enhancing the inside of the home will not be covered by your loan.
3. Additionally, borrowers must keep in mind that banks often provide construction loans for a portion of the development costs. For instance, private lender Axis bank offers a credit equal to 80% of the expected building cost.
Document required for construction loan
You might need to submit specific documentation depending on the bank from whom you are applying for the loan. Although not a complete list, the following documents must be submitted by the borrower with the loan application in order to be considered for a construction loan:
1. Age proof
2. income proof
3. Pan card details
4. Address proof
5. Land related documents
6. Estimated construction cost quotation
Estimated construction loan rates of all banks 2023
Read More : Top waterproof shoes available in India
|Bank Name||Rate of Interest||Processing Fees|
|SBI||8.50% – 10.15%||0.40% of the loan amount + GST|
|ICICI Bank||9.00% – 10.05%||0.50% of the loan amount + GST|
|HDFC Bank||8.50% – 9.00%||0.50% of the loan amount + GST|
|Bank of Baroda||8.60% – 10.60%||1% of the loan amount + GST|
|PNB Housing Loan||8.75% – 11.15%||0.35% of the loan amount+Applicable Tax|
|YES Bank||9.40% – 10.25%||2% of the loan amount + GST|
|Canara Bank||8.55% – 11.25%||0.50% of the loan amount + GST|
|Bank of India||8.60% – 10.60%||0.25% of the loan amount + GST|
Benefits of taking construction loan
Borrowers can take advantage of tax deductions for paying interest and principal on the construction loan under Sections 80C and 24 just like they can for home loans. But even if you borrow money to construct your first house, you won’t be eligible for Section 80EE and Section 80EEA benefits because those only apply to the “acquisition of a residential property.” This means that if you have purchased a plot and intend to use housing financing to build your first home on it, you cannot claim a deduction.
Process to Apply for construction loans
By going to the official website of the relevant bank, customers can choose to apply for a loan either online or in person at a branch. The applicant must meet the following requirements in order to be approved for a loan for home construction:
1. Ages between 18 and 65.
2. Residence: Must be an Indian or a non-resident Indian (NRI).
3. Employment: People who are salaried and self-employed.
4. Credit rating: over 750.
5. Income: Rs. 25,000 minimum each month.