If you own a piece of land and wish to construct your own home, you can get the necessary funds by applying for housing loan for construction. You can get the credit to build your own home either by employing a contractor or by yourself. The process of approval and disbursal of the home construction loan is different from the regular home purchase loan.

Here are some of the most important things to know about home construction loan:

The loan amount is disbursed in instalments only

Unlike the home purchase loans, where the lender pays the full amount in lump sum, the amount for home loan for construction is disbursed in instalments only. The approved loan amount will be disbursed in phases, depending on the progress of the construction. Most banks in India pay the approved loan amount in about 3-5 instalments. This means that you must have sufficient funds to purchase the raw material and begin the work.

The disbursement is related to the construction work

The banks in India have fixed criteria for disbursing home loan for construction depending on progress of the construction work. For example, if you have applied for a loan, which account to 85% of the construction cost, the bank will release the first instalment only after you furbish proof that the foundation work is completed. Thus, the bank will subsequently release the instalment after completion of certain level.

The banks will not pay for any change in the construction plan

Before approving the home construction loan, the banks would require you to submit various documents including the approved construction plan, sales deed, no-objection certificate from the local civic authorities. During the construction process, if you make any changes to the approved plan, the bank holds the right to freeze the funds. For any changes from the approved construction plan, you would have to take an additional approval and submit a fresh construction estimate to the bank.

All interior works are excluded

Home loan for self-construction is provided only for the immovable construction works. This implies that for the interior works like plumbing, lighting, furniture, painting, etc. you will not get any funds from the bank. The cost for interior works typically amounts to 3-4 lakhs or more depending on your luxury preference. Make sure that you check with the bank about the loan exclusions before you sign the loan papers.

Before you choose the lender, it is advisable that you do a thorough research of the different financial institutions and review their interest rate, documentation requirements and loan terms.

Learn more about our Home Construction loan.

DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.



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