"Need a loan for construction of home? Get home loan for construction of house with easy terms. Explore home construction loans at the best interest rates!"
Published: 1 March 2025
Updated: 1 March 2025
Ever dreamt of building your dream home but brushed the thought away, looking at the financial side of things? If yes, know that there is a way to transform your vision into reality– opt for home construction loans! They provide you with financial aid to handle various construction costs so that you do not have to strain finances.
Whether you’re hiring a builder or managing the project yourself, the right home loan for construction of house can make a lot of financial difference.
So, if you want to apply for one, read this blog and understand the diverse nuances of a house construction loan. From its benefits to tips for enhancing your loan approval chances, learn about various aspects.
As the name suggests, a house construction loan is designed specifically to finance the building of a house. Unlike a regular home loan, this loan’s amount is released in stages based on the construction’s progress.
For example, Vineet takes a house construction loan of ₹50 lakh. His lender releases ₹10 lakh for the foundation. Then again, ₹15 lakhs when the structure is being constructed and the rest amount in phases until the construction is complete.
However, you must know that loan terms and interest rates vary across lenders. For instance, an SBI home construction loan interest rate will be different from the loan offered by HDFC, ICICI, or other lenders.
There is a reason why people constructing houses are opting for a house construction loan instead of utilising their savings. These loans come with a lot of benefits:
The best part about home construction loan? The lender charges interest only on the amount disbursed. It significantly reduces the financial burden on the borrower and enables them to manage their cash flows efficiently during the construction phase.
Did you know that house construction loans typically offer high loan amounts to the borrower? It helps the loan applicant to easily take up bigger construction projects or make enhanced additions to the property. It allows you to build a home as per your choice. Thus, one does not have to worry about finances anymore when it comes to building their dream living space.
Several house construction loans are secured by that property itself. It allows borrowers to get the loan at competitive rates. Lenders also approve such secured loans as the property itself is kept as collateral.
As you think of applying for a loan for construction of home, allow us to bring to light certain important factors. Knowing about these will make the process more smooth for you:
Before applying for any loan, have your construction plan handy. It must include all the architectural details and cost estimates. Also, the plan must spell out project completion timelines and details about approvals from local authorities. It helps the lender get better clarity of the project and enhances the chance of prompt loan approval.
When applying for a loan for construction of home, first understand whether you are eligible for it. Wondering how to learn about that? Go through your lender’s eligibility criteria online and verify parameters like age, income, credit score, etc. See whether you satisfy the lender’s home construction loan eligibility and have enough repayment capability.
In India, when you apply for a home loan for construction of house, lenders extend credit based on LTV, i.e., loan-to-value ratio. It is usually a percentage of the total property construction cost. In India, the LTV ratio generally ranges from 70 to 90%, depending on the lender.
Before applying for a home loan for construction, compare the interest rates, processing and prepayment charges across various lenders. Look for lenders providing loans with favourable terms that align with your requirements.
A home loan for construction does come with a lot of benefits. However, what makes them more attractive is the tax exemptions that they offer. Check them out below:
|
Section under Income Tax Act |
Deduction Type |
Maximum Deduction Allowed |
Key Conditions |
|
24 |
Interest Paid on House Construction Loan |
₹2 lakh per annum |
You can claim this deduction only after the construction of the property is completed and not during the construction phase. |
|
80C |
Principal Amount Payment (Can also include stamp duty, registration, and transfer-related expenses) |
₹1.5 lakh per annum |
You must take home loan for construction of house from a recognised lender. You cannot sell the property within 5 years of possession. |
|
80EE |
Additional Interest Deduction |
₹50,000 per annum |
Tax exemption is available only for first-time buyers. The value of the house must not be more than ₹50 lakh, and the loan must not exceed ₹35 lakh. |
Here’s a formula that is usually used to calculate the house construction loan EMI:
M = P x (r(1+r)^n)/((1+r)^n-1)
Here,
M stands for monthly EMI
P stands for principal loan amount
R is for the monthly interest rate
N is for number of months
So, how do you find the above formula? It isn’t easy to navigate manually and makes the computations complex. However, with our My Mudra home construction loan EMI calculator, things get sorted easily. Here are its benefits:
Applying for a home loan for construction on land? Use our virtual calculator for EMI calculation:
Step 1: On our My Mudra website, navigate to the ‘loans’ tab and select the ‘secure loans’ option. A drop-down menu appears from which you must select the ‘home loan’ option.
Step 2: Scroll down to the EMI calculator and enter your loan amount.
Step 3: Enter the interest rate.
Step 4: Provide the loan duration or tenure in months.
After you enter these details, you will get to know your monthly EMI and total payable amount in seconds. Then, you can adjust the above inputs per your budget and narrow down to a loan amount you can afford.
Whether applying for an HDFC home construction loan or a loan from any other lender, the following tips will enhance your loan approval chances:
To verify your repayment capabilities, lenders often check your credit score. So, it is important to keep it high by paying off your obligations on time. Also, maintain a low credit utilisation ratio and limit your application for new credits.
When you make a high down payment, it reduces your loan amount and makes you a low-risk borrower. It helps you get your loan approved faster and can also fetch you better home construction loan interest rates.
Choosing an earning family member as a co-applicant during loan application helps. Their income adds to your eligibility. If they have a high credit score, it is even better as it can fetch you a loan on better terms.
Whether you are making the house construction loan application online or offline, you must keep the following basic documents handy. These are asked by a majority of the lenders, irrespective of which one you approach:
For Salaried Applicants:
For Non-salaried Applicants:
In addition to the above list of documents, there can be another list of papers that your lender can demand to check your loan eligibility. For more detailed information on these documents, check our home loan list of documents.
When it comes to building your dream house, let finance not be an obstacle. With so many attractive house construction loans available at the click of a button, you can fetch a good deal with favourable terms. From allowing financial flexibility to secure financing, these credit advances offer you several advantages. So, end the wait and apply for a loan for construction of home with My Mudra now! Our executives will brief you through the entire process so there is no delay in loan approval and disbursement.
A home construction loan is a type of loan given to individuals for building a house on their own land. The loan amount is disbursed in stages based on construction progress.
Salaried employees, self-employed individuals, and business owners with a stable income and a good credit score can apply for a home construction loan from My Mudra.
Interest rates typically range from 8% to 12%* per annum, depending on the lender, applicant’s credit score, and loan tenure.
Yes, most banks allow prepayment or foreclosure, but some may charge a prepayment fee of 1-3%, especially for fixed-rate loans.
Yes, many banks and NBFCs allow online applications for home construction loans through their websites or mobile apps.
