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What is a Home Loan?

Home loan is a secured loan facility, which banks and HFCs offer for purchasing, constructing, renovating, repairing and extending an existing/ new residential property. The loan is backed by the underlying property till the loan repayment. In case of default by the borrower, the lender has the legal right to take the concerned property into possession and then auction the property to recover the unpaid loan amount.

Home Construction Loan Interest Rates

Lenders usually provide home building loans at floating interest rates. The housing construction loan interest rates offered to loan applicants depend on factors like their credit score, monthly income, occupation profile, employer’s profile and loan amount and are usually the same as the interest rates charged for regular home loans.

What is the difference between a home loan and a construction loan?

Lenders offer regular home loans to individuals looking to procure funds for the purpose of home purchase, home construction or home renovation/extension. However, some lenders also additionally offer home building loan schemes solely for the purpose of home construction on existing plots owned by the loan applicants.

Features of Home Construction Loan

Interest Rate – Lenders usually provide home construction loans at floating interest rates. The housing construction loan interest rates offered to loan applicants depend on factors like their credit score, monthly income, occupation profile, employer’s profile and loan amount. The home construction loan interest rates are usually the same as the interest rates charged for regular home loans.

Comparison of Interest Rates on Home Construction Loans with other Lenders

Name of Lender Up to Rs 30 Lac Above Rs. 30 Lakh to Rs. 75 Lakh Above Rs. 75 Lakh
SBI
8.50%-9.85% p.a.
8.50%-9.85% p.a.
8.50%-9.85% p.a.
HDFC Bank Limited
8.70% p.a. onwards
8.70% p.a. onwards
8.70% p.a. onwards
LIC Housing Finance
8.50% - 10.35% p.a.
8.50% - 10.55% p.a.
8.50% - 10.75% p.a.
ICICI Bank
8.75% p.a. onwards
8.75% p.a. onwards
8.75% p.a. onwards
Kotak Mahindra Bank
8.70% p.a. onwards
8.70% p.a. onwards
8.70% p.a. onwards
PNB Housing Finance
8.50% - 14.50% p.a.
8.50% - 14.50% p.a.
8.50%-11.45% p.a.
Punjab National Bank
8.45% - 10.25% p.a.
8.40% - 10.15% p.a.
8.40% - 10.15% p.a.
Bank of Baroda
8.40% - 10.65% p.a.
8.40% - 10.65% p.a.
8.40% - 10.90% p.a.
IDFC First Bank
8.85% p.a. onwards
8.85% p.a. onwards
8.85% p.a. onwards
L&T Finance Limited
8.65% p.a. onwards
8.65% p.a. onwards
8.65% p.a. onwards
Tata Capital Housing Finance
8.75% p.a. onwards
8.75% p.a. onwards
8.75% p.a. onwards
Federal Bank
8.80% p.a. onwards
8.80% p.a. onwards
8.80% p.a. onwards
Axis Bank
8.75%-13.30% p.a.
8.75%-13.30% p.a.
8.75%-9.65% p.a.
Godrej Housing Finance
8.55% p.a. onwards
8.55% p.a. onwards
8.55% p.a. onwards

Note : Interest rate as on the 30 june 2024

Loan-To-Value Ratio

The LTV ratio of housing construction loans is the total proportion of a property’s value that a lender can finance through the loan. The LTV ratio should not exceed the regulatory caps on home loan LTV ratios decided by the RBI. The breakup of loan amounts for home construction loan and their corresponding LTV ratios are mentioned below:

Loan Amount LTV Ratio
Up to Rs. 30 Lakhs
Up to 90% of the estimated cost of construction
Above Rs. 30 Lakhs to Rs. 75 Lakhs
Up to 80% of the estimated cost of construction
Above Rs. 75 Lakhs
Up to 75% of the estimated cost of construction

Besides, every lender decides the final LTV ratio of loan applicants based on factors including their credit profile,  repayment capacity, etc. Note that some lenders may offer lower interest rates to loan applicants willing to increase their down payment contribution and thus opting for lower LTV ratios.

Loan Tenure

Banks and HFCs usually offer housing construction loans to applicants for loan tenures of up to 30 years. Lenders usually look at a loan applicant’s repayment capacity when finalising their loan tenure. They usually require loan applicants to limit their total EMI contribution, including the EMI of their proposed home construction loan, to be within 50-60% of their net monthly income. Thus, one should use the Paisabazaar home loan EMI calculator to calculate the loan EMI based on various loan amounts, tenures & interest rates before making the loan application. This would help one to opt for a loan tenure that keeps his total EMIs, including that of the proposed housing construction loan to within 50% of their net income.

Availability of Balance Transfer Facility

Existing housing construction loan borrowers can exercise the home loan balance transfer facility to move their existing construction loan to another lender at lower interest rates. This facility allows existing loan borrowers to cut down their overall interest costs. Note that the new lender will conduct an exhaustive credit risk assessment of a loan applicant before approving their request for balance transfer.

Processing Fees

Most lenders levy processing charges on applicants of home construction loans. It usually goes up to 2% of the total loan amount, with few lenders levying a higher charge on borrowers of a home building loan. Lenders may also waive off the processing fees on a partial or complete basis for loan applicants availing a home building loan.

Prepayment Charges

RBI guidelines prevent banks and HFCs from charging prepayment fees for housing construction loans availed at floating interest rates. However, lenders have the discretion to either levy or waive off the prepayment fees on fixed rate home construction loans.

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. The main documents required to apply for a housing construction loan are as follows:

  • 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

Note:  Lenders may ask their home construction loan applicants to submit additional documents.

FAQ (Frequently Asked Question)

A Home Loan for Purchase and Construction is a type of financing provided to individuals for the purpose of purchasing a new home or constructing a new house on a plot of land.

Eligibility criteria may vary, but generally, applicants must be:

  • Salaried or self-employed individuals with a stable income.
  • Within a specific age range, typically 21 to 60 years.
  • Having a good credit score and credit history.

The loan amount depends on several factors, including your income, credit score, property value, and repayment capacity. Typically, lenders offer loans up to 80-90% of the property value.

Home loan tenures can range from 5 to 30 years, depending on the lender and your eligibility.

Interest rates for home loans can be fixed or floating and vary between lenders. They typically range from 6.5% to 9.5% per annum.

The documents generally required include:

  • Proof of identity (Aadhar card, PAN card, passport)
  • Proof of address (utility bills, rent agreement)
  • Proof of income (salary slips, IT returns, bank statements)
  • Property documents (sale deed, property tax receipt)
  • Other relevant documents as specified by the lender

You can apply for a home loan by visiting our website and filling out the application form, or by visiting our nearest branch with the required documents.

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