Some useful tips for home construction loan

While borrowing a home construction loan, if you are under the assumption of getting a loan amount of 100% of the construction cost, then you are wrong. No bank or financial firm is going to fund your home construction loan for 100% amount required for construction. It is really important that you should get ready with some amount as down-payment for construction or start construction for the initial phase from your end. Try and make the down-payment from your own money or from liquidating your own savings. Arranging a personal loan for down-payment can be a costly affair as you will get the loan on higher rate of interest. If you don't have enough savings to make down-payment for initial phase of the construction or to showcase the bank that you have enough funds to support the work, then it is better to put off this idea for a while and save some money to arrange the funds for down-payment.

Down-payment is generally considered the amount you arrange by yourself to pay. It could be from minimum 10% to 20% or the maximum of 50% or more. Usually, banks offer a loan amount of upto 70% of the total construction cost. In that case, you have to arrange the remaining 30% from your end along with some contingency funds to meet the increase cost in any unforeseen situation. But, in most of the case, ideally banks disburse the 40% to 50% of the total cost of the construction of your house. One more thing that you should keep in mind that no bank is going to disburse the 100% amount of construction loan in one installment, rather banks disburse the construction loan in three to five phases, depending upon the completion of the construction. This also ensures the loan value lend by the bank must be lower than the actual value of the property.

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Property's location: Another important thing that most of the banks consider while lending you loan is property's location. Most of the banks approve your loan only if your property is located at an approved area that comes under municipal/local authority. If your property is not approved by the local authority or municipal corporation in that case bank will reject your application of loan. So, while buying a land of plot ensure that it is well approved by the local authorities.

Increase your share of amount to maximum: Try to arrange and make as much down-payment as you can. If you are borrowing a construction home loan in that case get ready to organise at least more than 50% of amount from your end. If you will arrange more amount from your end to start your construction and have enough amount to carry on the work till the time you will receive the loan from the bank, it is good. It will help in reducing the share of loan and at the same time reduces the size of EMIs. If you will borrow more amount as loan, your EMIs will also increase. If you will borrow 50% or less than 50% amount as construction loan in that case most of the banks easily approve your application. But, in that situation, they will disburse the loan once you complete the basic construction of your home.

Lower amount lesser chance of loan default: If you will borrow lower amount from the bank as construction loan it will reduce the chances of loan default. If your loan EMIs are within your budget and you have contributed equal amount for the construction, increases your credit worthiness. It is easy to maintain your monthly budget with lower EMIs than maintaining the same lifestyle with higher EMIs.

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  • Home Loan Interest Rates February 2024
    Axis Bank8.75% - 9.15%
    Bank of Baroda8.50% - 10.60%
    Citibank8.75% - 9.15%
    HDFC8.50% - 9.40%
    ICICI Bank9.00% - 9.85%
    Indiabulls Housing Finance Limited8.65%
    Kotak Bank8.70%
    LIC Housing8.50% - 10.50%
    Piramal Capital & Housing Finance10.50%
    PNB Housing Finance8.50% - 10.95%
    Reliance Home Finance8.75% - 14.00%
    State Bank of India/SBI9.10% - 9.65%
    Tata Capital8.95% - 12.00%
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