The Indian lending industry is one of the most dynamic. As an Indian citizen, you can stay assured that there is always a loan to fulfill all your needs.
This article gives you an insider’s guide to house construction loans and the key features that make this loan different.
What is a Home Construction Loan?
A home or house construction loan is a loan you can avail of to construct a house if you own a plot of land. It falls under the short-term loan category, and lenders generally ask for a guarantee before approving the loan.
What Makes House Construction Loans Different?
1. Lenders’ Checklist
As a construction loan depends on a property that does not yet exist, lenders verify a few facts before sanctioning the loan. The following things determine the quantum and the frequency of the loan amount:
1. The developer and the layout plan
2. The construction plan, which includes the sanction plan and a review of materials you plan to use
3. The down-payment or margin
4. The technical report, where an estimator values your property and decides the quantum of the loan at periodic intervals
5. Your credit history, monthly income, and liability
2. Process of Loan Disbursal
Unlike other loans, lenders disburse the house construction loan amount during the various phases of construction. A lender issues a lump sum amount when the construction begins. The remaining amount depends on the progress of work. However, if you are planning to buy a property on resale, then the entire loan amount gets transferred at one go.
3. Repayment Tenure
Like any other home loan EMI, a house construction loan EMI depends on the repayment capacity of the borrower, interest rate, and tenor of the loan. The main advantage of a house construction loan is that you can pay your EMI through post-dated cheques or electronic clearance system for up to 30 years. The higher tenor enables you to save more money by spending less. At present, the floating rate of interest is hovering around 9% for salaried and self-employed professionals.
4. Fast Approval
As a house construction loan requires a collateral guarantee, the loan gets quickly approved. The documents you need to submit are simple, and the loan disbursal process is fast and easy.
5. High Loan Amount
With a house construction loan, you get a higher loan amount than many other types of loans. Any reputed lender gives you up to 90% of the estimated value of the construction.
6. Tax Deductions
You may use a house construction loan to save taxes. Use the provisions of Sections 80C and 24 of the Income Tax Act to avail tax benefits on the principal and interest. Under Section 80C, you may save taxes of up to Rs. 1.5 lakh on the principal and, under Section 24, you may apply for tax deductions of up to Rs. 2 lakh on the interest if income is earned from the property. Moreover, Section 80EE of the Income Tax Act makes it possible for you to claim an extra Rs. 50,000 if you are a first-time homebuyer.
If you own land and are planning to construct your dream home on it, a home construction loan can be your best bet. A reputed lender with an excellent track record of loan disbursal, pan-India branch network, door-step service delivery, fast loan approval process, and flexible repayment options makes it easy for you to realize your dream of owning a shelter of your own.