Why Home Construction Loan is beneficial for you?

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:

• Your age should be between 21 and 65 years
   
• You require a monthly income of at least ?25,000
   
• A work experience of two years is mandatory
   
• You should have self-owned property
   
• Only residential plot purchase plus construction is allowed
   
• In case of plot purchase plus construction, the construction should start within 12 months.

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):

• Aadhaar Card
   
• Passport
   
• Voter ID Card
   
• Driving License
   
• PAN Card

Proof of residence (any one):

• Passport
   
• Voter ID Card
   
• Aadhaar Card
   
• Utility Bills

Proof of income:

• Income Tax Returns and latest Form 16
   
• Salary account statements showing salary credit details for the last six months
   
• Salary slips for the previous three months

Documents related to property:

• Encumbrance Certificate
   
• Title deeds of the plot
   
• Estimated costs for construction as assessed by a Civil Engineer or architect
   
• Photocopy of the plan which has been sanctioned by local authorities

Other documents:

• Own contribution proof
   
• Appointment letter, if the current period of employment is less than one year
   
• Bank account statements showing repayments made towards other existing loans, if any
   
• A cheque for the processing fee in favor of the lending institution
   
• Duly filled and signed loan application form along with passport size photographs of all the applicants/co-applicants.

For self-employed individuals:

Proof of Identity (any one):

• Aadhaar Card
   
• Passport
   
• Voter ID Card
   
• Driving License
   
• PAN Card

Proof of residence (any one):

• Passport
   
• Voter ID Card
   
• Aadhaar Card
   
• Utility Bills

Proof of income:

• Income Tax Returns coupled with income details of both the applicant and the business organization (attested by a certified Chartered Accountant) for the last three years
   
• Balance Sheet and account statements with Annexures/Schedules of both the business entity and the applicant (attested by a certified CA) for the previous three years
   
• Savings account statements of the borrower and the current account statements of the business organization for the previous six months

Property related documents:

• Plot Title Deeds
   
• Estimated costs for construction as assessed by a Civil engineer or architect
   
• Encumbrance Certificate
   
• Photocopy of the building plan sanctioned by local authorities

Other documents:

• Own contribution proof
   
• Latest Form 26AS
   
• Business profile
   
• Articles of Association, Memorandum of the Company
   
• Partnership deeds, if the business is a partnership
   
• List of Directors and Shareholders with their respective shareholdings if the business entity is established as a company (attested by a certified Chartered Accountant)
   
• Bank account statements of both the individual and the business entity indicating details of ongoing loans, if any
   
• A cheque for processing fee in the name of the bank/financial institution
   
• Duly filled and signed application form affixed with passport size photographs of all the applicants/co-applicants

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.

• Visit your lender's website or branch office
   
• Check if you are eligible for their home construction loans
   
• Fill up the application form online or offline
   
• Submit all the documents required
   
• The loan will be released after the verification process

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!