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Housing requirements can be varied. And housing loans are no exception. Home Loans come in a variety, catering to different needs and purposes. Unlike the traditional home loan, a home loan for construction is offered for buildings constructed right from scratch. These constructions may be for housing or commercial purposes. Say you’ve cracked an amazing deal and bought a piece of land. Now, a construction loan would help you finance everything required, from raw materials to labour, to help carry out the construction.
Home construction loans are offered by banks either under the traditional ‘home loans’ category or as a separate category itself. Moreover, there are limited lenders that specifically offer construction-based home loans. The land on which the construction is to be carried out is mortgaged with the bank, and the amount is usually disbursed in phases as and when the need arises. Today, we take a comprehensive look at these loans, exploring the house construction loan interest rates, eligibility criteria, documentation and much more.
House construction loans offer multiple advantages to their borrowers. Here are some of the features that make it stand out from the rest of the loans:
The construction loan eligibility criteria for salaried borrowers are as follows:
Construction loan eligibility criteria for self-employed borrowers are listed below:
Apply Home Loan For Different Property Types
Borrowers should keep the following documents handy while submitting a construction loan application:
Different lenders charge different house construction loan interest rates. This interest rate further affects the EMIs on the borrowed amount. Take a quick look at the interest rates charged by some of the leading lenders in India:
| Lender | Interest Rate (p.a.) |
| LIC Housing Finance Ltd. | 8.40% onwards |
| Bank of Baroda | 8.40% onwards |
| PNB Housing | 8.50% onwards |
| Bajaj Finserv | 8.50% onwards |
| TATA Capital | 8.70% onwards |
| HDFC | 8.75% onwards |
| SBI | 9.15% onwards |
| ICICI Bank | 9.25% onwards |
Take a side-by-side look at construction loans and standard home loans.
| Basis | Construction Home Loan | Standard Home Loan |
| Purpose | To construct a new property, right from scratch | To buy an already-constructed home or an under-construction property |
| Loan Disbursement | Disbursed in instalments as the construction process progresses | Full amount sanctioned at once |
| Interest Rates | Higher interest rates due to higher risk and lesser demand | Comparatively lower interest rate due to high market competition |
| Loan Tenure | Short-term loans, ranging from 7-15 years | Long-term loans, ranging up to 30 years |
| Repayment | Only interest repayments are made during construction. Principal repayments can commence upon the completion of the construction. | Repayments begin immediately after the disbursal of the loan amount. |
Different lenders offer different types of house construction loans. Depending upon their specific needs, borrowers can choose from the following types of loans: