4 Important Things to Know About Home Construction Loan

A home construction loan differs significantly from a mortgage. With a construction loan, you are taking financial help from a lender to pay for the land, the construction, other expenses, and everything involved with building a home from scratch.

If you plan to build your own house instead of buying a new one, the experience is sure to be more beautiful and enjoyable. However, to do so, you will need home loan for construction of house, which comes with its own set of procedures.

List of Home Construction Expenses

Here are the items that home construction loans might cover:

  • Architectural plans
  • Building permissions
  • Labor costs
  • Interest T (for interest that may accumulate during construction)
  • Closing costs
  • Land
  • Design charges
  • Material costs
  • Contingency reserves (in case you exceed your budget)
  • Long-term financing (after construction of the property)

Many additional expenses are involved compared to a regular home mortgage. Considering this, let us briefly look at what goes into a construction loan to build a house in India.

Things to Consider for a Home Construction Loan in India

Before you apply, you need to consider a few things for home construction loans:

Eligibility Criteria

To begin with, you need to know whether you are eligible for a construction loan as follows:

  • Age: You should be between 18 and 65 years of age.
  • Residential Status: You need to be an Indian citizen or a Non-Resident Indian. (NRI)
  • Employment Status: Both salaried and self-employed individuals may apply.
  • Credit Rating: Your credit rating needs to be 750 or above.
  • Minimum income: ₹25,000 per month

The loan amount that you qualify for would largely depend on the monthly income that you can show.

Documents Required

You need to submit:

  • KYC details and proof of income.
  • proof of ownership to show a clear title over the concerned land
  • Encumbrance certificate to prove that your land is free of encumbrances.
  • Plan and layout of your house approved by a local government authority.
  • Estimate highlighting how much the construction will cost certified by an architect or a civil engineer.

Equated Monthly Installment (EMI)

Once the funds have been disbursed, you will have to start paying monthly repayments known as equated money installments (EMI). Because it is a monthly commitment that you need to pay for several years, it is crucial to understand how much EMI you have to pay every month.

You can avail yourself of the many online EMI loan calculators to know your monthly EMI.

Interest Rate

Home loan interest rates differ from one financial institution to another. The interest rate depends on many factors; it may come as a surprise to you that this is negotiable. Your interest rate also gets dictated by the tenure of a loan. An extended loan attracts less interest than a shorter one.

It is always a good idea to shop around a bit to see if you can find a lender who offers reasonable interest rate on home loan.


Constructing a home is one of the major milestones in your life. When you decide to go for a home construction loan, start on the right note by finding a reliable lender and consider these four points that we have provided here.

It will ensure that you procure your loan seamlessly and effortlessly. Make your home construction into a memorable experience with a suitable lender who can meet all your home loan requirements.

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