Getting a home construction loan is often an essential step in the process of planning to build your dream home in India. Home construction loans offer the required financial assistance to realise your dream of owning a custom-built residence. However, it is crucial to understand all aspects of this financial product and the variables that can influence the loan approval process before applying for a home construction loan in India.
This article aims to discuss the essential factors and knowledge a borrower must have before applying for a home construction loan in India.
What is a Home Construction Loan?
A specific kind of loan designed to finance the building of a new residential property is a home construction loan. A home construction loan disburses funds in divisions to cover the various stages of building, unlike standard home loans intended for the purchase of existing residences. The loan amount is disbursed away gradually according to the construction milestones, starting from the foundation and ending with the roof.
How to Get a Home Construction Loan?
To get a home construction loan, follow the below-mentioned eligibility and steps.
Eligibility
To qualify for a home construction loan, you need to meet the following eligibility criteria:
- A minimum credit score of 620, while a higher score is ideal.
- A maximum debt-to-income ratio of 45% is proof of your capacity to repay the loan.
- A 20%-25% down payment on the project’s total cost.
- A written agreement with a builder who is insured and licensed.
- An assessment of the value of the completed home and the land.
- A detailed project plan.
Steps to Get a Home Construction Loan
Step 1: The application form must be filled out by the borrower from the lender’s website.
Step 2: The applicant needs to submit the necessary paperwork, such as a bank statement, Form 16, and records confirming their identification and property ownership.
Step 3: After a successful application and approval, the loan funds are then disbursed to the borrower’s bank account in instalments based on the building construction.
Factors and Tips to Consider for First-Time Home Construction Loan Borrowers
The factors to consider before taking a home construction loan are as follows.
1. Detailed Construction Plan
Construction loans are finalised and approved based on building plans and blueprints. Plans cannot be changed once agreements have been finalised. Consequently, ensure you have a detailed blueprint of your home’s construction specifics before applying for funding.
2. Short Terms
Compared to standard home loans, home building and renovation loans frequently have shorter loan terms. Before applying for home-building financing, calculate your monthly payments using one of the many online home loan calculators.
3. Eligibility Criteria
Before applying for a loan for the construction of a house, you must fulfil the qualifying requirements. It is necessary to meet the qualifying requirement with a high credit score, steady employment, work experience, etc. Furthermore, if the site or the property being developed is co-owned, a co-applicant is required.
4. Documentation
Before being approved for home-building financing, a borrower needs to provide additional documentation in addition to the usual income and KYC papers. Plot documentation, sales deeds, approved drawings, an official no-objection certificate from the relevant authorities, and other requirements of that nature must be provided to your lender.
Advantages of a Home Construction Loan
The various benefits of a home construction loan are as follows.
1. Customisation
With the help of home construction financing, you can construct a uniquely built home that fits your needs and tastes.
2. Ownership of Real Estate
You have complete control over the building process and the finished design of your home as the property owner.
3. Appreciation of Value
Over time, financial appreciation and increased property value are possible outcomes of building a new home.
4. Investment Over Time
Using a construction loan to build a home is an investment that will pay off in the long run by giving you the satisfaction of property ownership and a gradual increase in property value.
Conclusion
In India, obtaining a home construction loan requires thorough preparation, a financial evaluation, and compliance with lender guidelines. Applicants can apply for home construction loans with ease if they are aware of the details, such as eligibility requirements, credit score considerations, required documentation, and repayment commitments. Check out a home loan app like Tata Capital for a secure home loan. You can confidently start the process of building your ideal home if you have the necessary information and are well-prepared.
