Home construction loan Vs. Home loan: Choose the best

When it comes to home all of us want it to be perfect and within our budget. But, if you don't have enough money to support your idea of owning a home or construct your home, then you look for other options to buy or construct your dream home. But, between buying or construction a home, which one is the better option. People have different opinions on this topic. Some favoured buying a ready-to-move-in home is a better option as you are not supposed to go through the construction phase and you safeguard yourself from facing problems related to construction and delays in that. But, there are many people who support a totally different opinion and support the idea of constructing a home by own, rather than buying a ready-to-move-in property.

Though, it is not simple to make a choice between these two as both have their advantages and disadvantages. But, you should pay attention to all the related factors and features related to both the loan and then only make your decision. Your decision should be based on calculations and after  effects of the loan rather than making an emotional decision. Whichever loan you will borrow a home loan or a home construction loan, for both the loans you are supposed to pay the EMIs for the whole tenure. So, let's have a close look at both the products and compare them on different points before making the decision.

Loan application process: The process of home loan application is a bit simple as compared to home construction loan. In home loan you are supposed to submit some basic documents along with property's paper for verification. But, in home construction loan you have to submit property's paper, plot's legal authorization from local authority or municipal corporation, construction map or blueprint of the design from an authorized civil engineer or architect, property tax submission papers, etc., along with the basic documents. So, the application process of the home construction loan is a bit complex as compared to the home loan application process.

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Loan tenure: This is very important point that you should always consider before availing the loan. A longer tenure helps in reducing the size of EMIS on monthly basis. But, a shorter tenure will result into higher EMIs if you have borrowed a large loan amount. In home loan the maximum repayment tenure is 30 years, but in home construction loan the maximum tenure to repay the loan is 10 years to 15 years. This maximum tenure varies from bank to bank and most of the banks offer you this loan for a shorter duration between 7 years to 10 years. So, consider this point before availing the loan as a longer tenure will help you in paying lower EMIs which will not make much of difference on your overall monthly budget, but higher EMIs can impact your monthly budget.

Rate of interest: As there are various banks and non financing companies offering home loan to customers. But, in home construction loan there are not many options that you can explore. Not all the banks offer you home construction loan. Therefore, home construction loan it might be you will pay a higher rate of interest. But, the rate of interest for home loan is very competitive because of the various lender available in the market. Even the rate of interest also depends upon the eligibility criteria of the customer. If you have a lower eligibility then there are chances that banks will offer you a higher rate of interest.

Loan disbursal process: When banks approve your application of home loan you will receive the approved amount within seven working days in your account or the amount get transferred to directly into the account of the builder or society from which you are buying the home. You receive the whole amount in one installment. But, in home construction loan you receive the loan amount in three to five different phases based on the completion of the construction. So, if you are assuming that you will receive the whole estimated construction cost in one installment then you are having wrong assumption. Moreover, the bank can delay or suspend the remaining installments in case delay in construction or halt in construction.

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Loan ration: In home loan, the maximum loan amount ratio is 90% of the total market value of the property if you are buying a home less than Rs. 30 lakhs, but if you are buying a home more than Rs. 30 lakhs in that case the loan ratio will be lower. Generally, in home loan you receive the maximum loan amount of upto 70% to 80% of th market value of the property. But, in home construction loan as there is no equity, rather you are building an equity. So, the  bank offers you a loan amount of maximum 70% of the total estimated cost of the construction and in most of the cases customers receive 50% to 60% of the total estimated cost. So, rest of the amount they have to arrange by themselves and in case of cost increase in any unforeseen situation, you have to manage the margin cost as well by your own.

Tax benefits: When you borrow home loan you can claim the income tax benefits for both principal amount and interest amount against the loan. But, in home construction loan, you can't claim the income tax benefits till you don't submit the completion certificate of the home approved by any certified authority to the bank. If you are repaying the interest part during the construction phase, still you are not eligible to claim the tax benefits until you complete the construction of the home.

Personal Loan Interest Rates December 2018
Bajaj Finserv10.99% - 16.00%
Fullerton India14.00% - 33.00%
HDFC Bank11.25% - 21.50%
ICICI Bank10.99% - 18.40%
IndusInd Bank10.99% - 16.00%
Kotak Bank10.99% - 20.99%
RBL13.00% - 18.00%
Standard Chartered Bank12.00% - 17.00%
Tata Capital10.99% - 18.00%
Home Loan Interest Rates December 2018
State Bank of India/SBI8.75% - 9.35%
HDFC8.80% - 9.70%
Bank of Baroda8.65% - 9.65%
LIC Housing8.85% - 9.05%
PNB Housing Finance9.00% - 13.00%
ICICI Bank9.10% - 9.35%
Axis Bank8.85% - 9.10%
Citibank9.00% - 9.85%
Indiabulls Housing Finance Limited8.80% - 11.05%
Kotak Bank8.90% - 8.75%
DHFL9.05% - 9.95%
Reliance Home Finance8.75% - 14.00%