One can achieve one’s home of dreams in many different ways. Some of us like to own a readymade house whereas some others like to see their home being built exactly the way they planned it to be. It is your choice whether you would like to invest your time or energy to craft the home of your dreams or would you like to avoid the hassles of home construction; either way, the financing options are never limited. Bank loans are easily available for both kinds of home purchasing.
Financing is the first concern of all kind of home buying. When you apply for a loan for an under-construction property, it is called a ‘home construction loan ‘. Whereas when a loan for buying a fully constructed house is availed, it is called a ‘home loan ‘.
A home loan and a home construction loan appear similar and many of the borrowers are found to be getting confused with these two credit products. Though both of these products are meant to be home buying only, there are some differences that distinguish both the products. Here are the vital differences between a home loan and a home construction loan.
Construction Loans Are Shorter in Tenure
A home loan is a kind of credit that can run for as long as 30 years. But when it comes to a construction loan, one cannot enjoy such a long tenure. The tenure of a construction loan is always shorter which results in a higher amount of EMI. The risk factor is always high for the lender in a construction loan than a general home loan. Moreover, for availing a construction loan, you will need to produce detailed plans, a construction timetable, and a budget that makes business sense.
Home Construction Loans Are Disbursed In Phrase
A home loan on an under-construction property loan is not disbursed at once. The loan amount is disbursed as progress is made on the project. The whole loan amount is broken down into phases. The lender keeps a sharp eye on the progress of the project and a phase of the loan will be disbursed only after the previous phase is successfully completed within the given time. But if you avail a standard home loan, the whole amount is disbursed at once.
The Tax Exemption Conditions Are Different
A home loan and an under-construction home loan both can claim tax benefits but the claiming process is not similar. the tax benefit for an under-construction home loan cannot be claimed if the construction is not completed within 5 years or the house is sold within 5 years. Moreover, the tax return should be claimed in five equal parts. If you take a general home loan, all these conditions will not be applicable.
Larger Down Payment
A general home loan down payment is 10% to 20% of the property value. The rest of the amount can be availed through home loans. But to qualify for a home construction loan, one must pay more than 25% of the property value as a down payment.
The Rates
One will always find a difference in home loan interest rate and home construction loan interest rate. The rate of interest on home loans is generally in the range of 8.55- 12 percent. But a Home construction loan is always costlier than a general home loan. The rates of a home construction loan ranges somewhere between 11-14 percent. The interest rate can vary depending on the lender and the property for which the loan has been taken.
Interest Rate and Tenure
The tenure of Home construction loans generally ranges from 12 to 15 years. Banks mostly charge a floating rate of interest on this loan. Compared to other loans construction loans has a higher spread. However, comparing different lenders for the interest rates is very important before one settles down for a particular lender.
Eligibility
The standard eligibility criteria to avail a home construction loan may vary from bank to bank but generally, they are dependent on the following factors-
- Age
- Monthly Income
- Educational Qualifications
- Number of dependents
- The organization in which the applicant is employed
- Repayment capacity
- Income of the co-applicant if any
One can apply for a home construction loan either individually or jointly with a co-applicant. All the co-owners of the property have to be co-applicants. But it is not mandatory that all the co-applicants be co-owners of the property.
Salaried and self-employed individuals both are eligible for a home construction loan.
Some banks also offer home construction loans to NRIs too.
A home construction loan is a boon for those who want to live in a house which has been made as per their likes, instead of living in a condo built according to the builder. A proper research before applying with a particular lender can help save someone from all the unnecessary hassles and the process can be a smooth one without any surprises.
Zero Cost In Prepayment
Most of the lenders of home construction loans offer zero pre-payment charges even if it is an early period of the tenure. But if you want to pre-pay your home loan in an early period i.e. before completion of the first 18 months, you will have to pay a pre-payment penalty.
Construction loans are a must for builders who work with huge projects. But individuals who want to build their homes according to their own way can also avail the same. But as mentioned above, availing a home construction loan is a bit tricky as you will need to produce a full-proof plan for your home construction and must complete the construction within the pre-fixed time so that the disbursals are done at the right time. Before you reach any lender for a construction loan, you must be equipped with a realistic architect plan and an adequate amount for the down payment of the property.
What is Home Loan EMI?
An EMI is a credit reimbursement strategy in which the chief sum and the enthusiasm, in equivalent portions each month, is paid to the bank until the advance is completely reimbursed.
What is Home Loan EMI Calculator?
A Home Loan EMI Calculator is an online apparatus for figuring the EMI of a home credit. Taking care of home advances alongside the accumulated enthusiasm inside the specified period requires exact money related arranging. It is imperative to evaluate the reimbursement capacity before deciding on the credit so as to maintain a strategic distance from any monetary wreckage. This is the place a Home Loan EMI Calculator can be best put to utilize. EMI represents Equated Monthly Installment.
