Eligibility Criteria for Home Construction Loan

We all know about home loans, mortgages and any other loans that allow us to invest in the purchase of a property. But what happens when you’ve bought the property or piece of land you really wanted? You still might end up needing a huge sum of money to renovate the property or to construct a house on the piece of land you bought.

This is where a Home Construction Loan comes in. Whether you already know what a home Construction Loan is and just want to find out the technical aspects related to it or want to know in detail what this new concept is, we have you covered.

What Is A Home Construction Loan?

As the name suggests, a home construction loan is granted to an individual that wishes to construct a new home or make changes to the structure of their existing home. These loans are given out after a careful analysis of the proposed construction timeline, blueprints, and budget. Unlike a home loan, home construction loans aren’t disbursed as a lump sum on approval. The approved loan amount is disbursed over a period of time in smaller amounts as agreed upon in the loan agreement.

Most major banks and lending institutions that provide a home loan also provide home construction loans to borrowers.

There are four types of home construction loans:

1. Renovation loans:

A home renovation loan can be taken out for a number of home renovation projects ranging from a small paint job to adding a whole new floor to your house.

2. Self-construction loans:

These are availed by individuals who have the plot to build a home from scratch, i.e. the foundation.

3. Home+home construction loans:

These are loans that provide the borrower with the chance to take out a home loan along with a home construction loan. Thus you can buy a home and make any renovations on it without having to go through the process of applying for a loan all over again.

4. Plot+home construction loan:

Similar to home+home construction loans, this type of loan facilitates the buying of a plot where one wishes to build a home from scratch.

Also Read: Key Factors When Choosing a Home Loan

Eligibility Criteria For A Home Construction Loan

If you’re looking to get a construction loan, you need to meet certain eligibility criteria. The following are eligibility criteria whether you’re salaried or self-employed.

*These eligibility requirements are subject to change as per the lender’s own violation.

In case you don’t meet the above criteria in some way or the other, we suggest reaching out to a lending agent and discussing it with them. Sometimes the bank or the lending institution might be willing to make an exception for you considering everything else in your profile checks out.

Also Read: 6 Frequently Asked Questions On Home Loan

Documents Required To Take A Home Construction Loan

The following are the documents that the borrower is required to furnish to get a home construction loan issued. 

Documents Required for Salaried Borrowers

1. Identity Proof (one of the following):

1. Aadhar Card

2. Driver’s License

3. Pan Card

4. Voter ID Card

5. Passport

2. Residence Proof (one of the following):

1. Aadhar Card

2. Voter ID Card

3. Passport

4. Employer ID Card

5. Utility bills

3. Proof of Income:

1. Latest Form 16 and Income Tax Returns

2. Salary account statements for the last six months

3. Salary slips for the last 3 months

4. Property Documents:

1. Encumbrance Certificate

2. Titles to the property

3. An Architect or Civil Engineer’s estimate for the construction costs

4. Copy of plans approved by the regulatory authority.

5. Other Documents: 

1. Credit Report

2. Any other documents demanded by the loaning agent

Documents Required for Self-Employed Borrowers

1. Identity Proof (one of the following):

1. Aadhar Card

2. Driver’s License

3. Pan Card

4. Voter ID Card

5. Passport

2. Residence Proof (one of the following):

1. Aadhar Card

2. Voter ID Card

3. Passport

4. Employer ID Card

5. Utility bills

3. Proof of Income:

1. Income Tax Returns for the last 3 years for both the borrower and the business entity (company) attested by a CA.

2. Balance sheet and P&L statements for the last 3 years for both the borrower and the business entity (company) attested by a CA.

3. Savings account statements of the borrower and Current account statements of the business entity (company) for the last six months.

4. Property Documents:

1. Encumbrance Certificate

2. Titles to the property

3. An Architect or Civil Engineer’s estimate for the construction costs

4. Copy of plans approved by the regulatory authority.

5. Other Documents: 

1. Credit Report

2. Form 26 AS

3. Memorandum and Articles of Association of their company

4. Partnership Deeds if applicable

5. Bank statements of the company 

6. List of Shareholders and Directors

7. Business profile

Interest Rates And Processing Fees For Home Construction Loan

Here are the interest rates and processing fees of some of the leading banks and lending institutions that provide home construction loans.