Construction Loan

A construction loan, also known as a self-build loan, is a short-term loan used to finance the construction of a home or other real estate project. Once long-term financing is secured, the contractor or home buyer must take out a construction loan to cover the building costs. A construction loan typically has a higher interest rate than a conventional mortgage loan, since it's considered riskier. Construction loans are typically taken out by contractors or a homebuyer who custombuild their own home. They are short term loans, usually for one year. The borrower may either refinance the construction loan into a permanent mortgage or receive a new credit to pay off the construction loan, called the "end loan", after the construction of the house is complete.The borrower would only be asked to pay interest on a construction loan when the project is still underway. Many construction loans can require payment of the balance in full by the time the project is complete.

Eligibility Criteria for availing Housing Construction Loan

The eligibility criteria for availing home construction loans is more or less similar to the eligibility criteria set for regular home loans. Some of the main eligibility conditions required for loan applicants are as follows:

• Lenders usually offer housing construction loans to both Resident and Non-Resident Indians (NRIs).
• Age: Banks and HFCs usually approve house building loans applications made by loan applicants aged 18 years and above. Most banks and HFCs require borrowers of home construction loans to conclude their loan repayment by the time they are 70 years old.
• Both salaried and self-employed individuals can apply for a home building loan.
• Borrowers of home building loans can add earning family members as co-borrower(s) or opt for a longer loan tenure to improve their eligibility for home construction loans.
• Credit Score: Loan applicants having credit scores of 750 and above have higher chances of availing housing construction loans. However, some banks and HFCs may provide home loans at lower interest rates to applicants with higher credit scores.

Lenders might also look at factors like a loan applicant’s income, work experience (for salaried applicants) or business continuity (for business owners), employer’s profile, occupation profile, etc. while ascertaining their eligibility for availing a home construction loan.

Documents Required for Home Construction Loan

The documentation process for home construction loans is largely similar to the documentation required for regular home loans.

• Identity proof
• Address proof
• Age proof
• Income proof
• Proof of employment/business
• Property related documents
• Estimated cost quotation for home construction
• Duly filled application form