Home Construction Loan

offers Home Loans for the purpose of self-construction of a residential house property. This is a unique offering for customers who already have land owned by them and need funds for financing the construction of the residential house property on the land.

Differences: Home Loan Vs Construction Loan

Tenure of a construction loan is shorter

The tenure period of a home construction loan is much shorter that a regular home loan, resulting in higher EMIs. This is so because the lender is at a greater risk to provide funding for a house that does not yet exist.

The home construction loan amount is disbursed in phases

Unlike a regular home loan amount, which is disbursed in its entirety to the borrower, a home construction loan is paid out in phases. The lender keeps an eye on the construction and pays for the next phase only after the previous construction phase is complete.

A construction loan has a larger down payment

Where a regular home loan has a down payment of 15% to 20%, the down payment of a home construction loan can be 25% and above.

Interest rates

Generally, interest rates for home construction loans are higher at about 11 to 14 percent, as opposed to 8 to 10 percent for regular home loans. You can easily find out these details by using a home loan calculator available on various websites.

Final Word

Thus, a home loan and a home construction loan have their own advantages and disadvantages. A home loan can be more economical and hassle-free, but you would have to choose from existing or pre-built houses.

A home construction loan is advantageous in this regard. You can make your house the exact way you want in exchange for higher interest, a shorter tenure, and a detailed architect and construction plan for your dream house that the lender has to approve.