Buying a house is one of the most critical purchase decisions of one's life, and many people wish to have their home built exactly the way they want instead of settling for an apartment or pre-constructed property.
A home construction loan, also known as a self-build loan, is typically taken out by a contractor or homebuyer who wants to custom-build their own home or any other real estate project. It is a short-term loan which the borrower may either refinance into a permanent mortgage or receive a new credit to pay it off completely, called the "end loan," after the construction of the house is complete. Since it is considered riskier, a home construction loan has higher interest rates than a conventional home loan.
Loan for home construction eligibility criteria
The eligibility criteria for home construction loans may vary from lender to lender. Many lending institutions demand a minimum 20% down payment on a construction loan, with some as high as 25%. Borrowers may face problems while securing a construction loan, particularly if they have a limited credit history. There could be the issue of lack of collateral since the home is not yet built, which poses a hurdle in obtaining lender approval.
The borrower may also need to provide the lender with detailed design information (Blue Book) to obtain permission for a construction loan. They would also have to show that the project includes a professional contractor. For instance, with Poonawalla home construction loans, you can avail funding for plot purchase plus construction (or just construction) by fulfilling a few simple eligibility criteria:
Documents required for a home construction loan
Given below are the home construction documents usually required to avail of a loan:
For salaried individuals:
Proof of Identity (any one):
Proof of residence (any one):
Proof of income:
Documents related to property:
Other documents:
For self-employed individuals:
Proof of Identity (any one):
Proof of residence (any one):
Proof of income:
Property related documents:
Other documents:
Remember that this list is non-exhaustive. Additional documents may be asked for based on the borrower's profile and the lender's requirement.
How can I apply for land purchase and home construction loans?
Applying for a construction loan has become very easy, with most lenders offering their services online these days.
Tax Benefits of a home construction loan
A home construction loan comes with several home loan tax benefits that you can use. The home construction tax benefit is as follows:
| Deductions | Section | Maximum Deduction (Rs.) | Conditions |
| Principal | 80C | 1.5 Lakh | The property should be held for at least five years after possession. |
| Interest | 24B | 2 Lakh | The loan must be taken for the purchase/construction of a house, and the construction must be finished within five years from the end of the year during which the loan was taken. |
| Interest | 80EE | 50,000 | The loan amount should be Rs 35 lacs or less, and the property’s value should not exceed Rs 50 lakh. |
| Stamp Duty | 80C | 1.5 Lakh | It can be claimed only in the financial year during which these expenses were incurred |
| Interest | 80EEA | 1.5 Lakh | The stamp value of the property should be Rs.45 lakhs or less. The taxpayer is not eligible to claim deduction under Section 80EE. |
Ready-to-move-in properties generally charge a premium for the cost of materials used and include many hidden expenses that drive the price up significantly. However, you can keep costs lower by making your own decisions about the construction process. Poonawalla Fincorp lets you fulfil your dream to buy a plot and construct a home with ease. Our loan process is quick and hassle-free, along with the convenience of flexible repayment tenure, no foreclosure/pre-payment charges, and end-to-end doorstep service. Apply for home construction loans today!
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