Owning their dream home is the ultimate aspiration for most families today, especially in India. While this is an exciting venture indeed, the sky-high real estate landscape is often a deal-breaker. However, most people believe that availing a home loan is the sole financial aid to help in this scenario, which is not the case at all.
To help aspiring homeowners continue their journey of owning a dream property, financial lenders also offer a second option, known as a home construction loan. Confused about what is it? Let’s get into its details and see how it differs from a traditional housing loan.
Getting into grips with home constructions loans
In a nutshell, home construction loans help you undertake a residential property’s construction for investment or personal purposes. On the other hand, traditional housing finance is helpful for purchasing ready-made or an under-construction property.
While these two differ on vital aspects such as home loan eligibility, they also share some similarities. When applying for either, the lender will follow the same procedure for home loan sanctioning. Moreover, all the co-applicant and repayment rules will be identical, as well.
How the two differ?
Coming to the differences, there are several when it comes to housing and construction loans.
The interest rates
Usually, construction loans carry higher home loan interest rates than their counterparts. This is mainly due to lenders charging the housing loan rates a couple of points lower than construction financing.
This can often cause confusions, due to which, online lenders now offer a home loan EMI calculator, where you can check the monthly interest rates and instalments you’ll have to pay.
Varying documentation
While quintessential housing finance requires the usual documents such as KYC papers, property papers for verification, income proof, a home construction loan entails much more.
These can include, in addition to the documents above, the municipal corporation’s approval, the proposed construction’s blueprint from an authorised civil engineer or architect, the concerned local authorities’ legal authorisation for the plot, and property tax papers as well.
Larger down payments
While a usual housing loan entails a typical down payment anywhere between 15-20%, it is significantly higher for housing construction ones, demanding 25% or above.
Disbursal procedures
For the usual housing loans, lenders will directly transfer the sanctioned amount to your or the builder’s bank account within a week of approval. With this, you will receive the entire amount in a single instalment.
Whereas, a lender disburses the sanctioned amount in multiple phases, for home construction financing. Usually, it will take you anywhere between three to five sections to receive the whole loan amount. Moreover, this carries risk, as the lender may not provide further instalments if the property’s construction comes to a halt.
Approved loan amounts
In case of home construction financing, you will receive from 50-70% of the total construction cost, as the property is yet to be finished. For its counterpart, you can get up to 80%.
Your dream home awaits!
Now that you know what is what, start checking home loan EMI and choose the loan option that suits you best. Why wait when your humble abode awaits you?