Few events in life can be as fulfilling and rewarding as owning your home. Constructing the home, tinkering with architecture, and designing its interiors call for meticulous planning. The key lies in arranging the needed funds. Banks and non-banking finance companies (NBFCs) recognise how important a life event this is. So, they offer credit to home loan borrowers in making their dreams come true. The Reserve Bank of India has mandated all banks and NBFCs to offer home construction loans to borrowers under the priority sector. Home construction loan rates are at a minimum, thus increasing affordability. The underlining principle is ensuring a home for every Indian.

The starting point

Borrowers can get confused with the wide array of home loans that are available in the market today. There is a loan category for almost everything you can think of. You can avail a loan to buy an already constructed or under-construction house. You could even look at a house in the project launch stage. Or, you could apply for a home loan to construct a house according to your requirements. So, it is important to know what you want before beginning the home construction loan process. This helps a borrower to assess their exact needs.

Becoming loan-ready

Before applying for a home construction loan, it is important to be ready. The first step could be getting your credit score from CIBIL. In general, loan parameters vary from lender to lender. But most lenders consider a CIBIL score of 700 and above to be adequate. If you score below that, your chances of getting the loan are bleak. TransUnion CIBIL Limited is India’s first credit information company. It collects and maintains records of an individual’s payments for loans and credit cards. Lenders accept CIBIL as the best source of gauging an individual’s creditworthiness.

It also helps if you get yourself pre-qualified for the loan. This way, you gain access to some of the best home loan deals available in the market today. Doing all the paperwork to pre-qualify for a home construction loan is also essential. The lender may ask for details of the construction project, references, proof of employment, and bank statements, among other things.

Application process

If a bank or NBFC branch is nearby, pay a visit and fill in the application form for a home loan. Here is a quick checklist of the documents you will need to attach with the application form:

  • Proof of age and identity
  • Proof of residential address
  • Proof of income (may include salary slips, Form 16, income tax returns)
  • Details of liabilities and bank statements
  • Property documents:

If the property is finalised, submit allotment letter of agreement of sale
If the property is undergoing resale, submit previous documents to show chain of ownership

Sanction

As a first step, the lender will look at your financial eligibility. What is your income? How old are you? Do you have any existing loans? What is your repayment track record like? A verification of your residence and office will follow. Only after that will the property value come into play. After examining this, the lender will assess your final eligibility. There will also be legal verification. That is why you must check that the property is not facing any legal trouble.

Construction loan disbursement procedures

Once you meet the criteria demanded by the lender, you will finalise the loan. At this stage, you may need to submit some documents. This includes the original property documents and the loan agreement. You will also have to submit some post-dated cheques for your EMIs. The lender will then disburse the loan. Your EMI schedule will commence from this day.

Home loan interest rates

Home loans fall under the category of priority sector lending. Loans up to Rs 28 lakh in metropolitan cities and Rs 20 lakh at other centres for construction or purchase of a dwelling unit per family come under this category. There is a restriction, however. The total cost of the unit in metropolitan centres and at other centres should not exceed Rs 35 lakh and Rs 25 lakh, respectively. Interest rates will vary from lender to lender. Generally, they tend to be in the bracket of 9–11% per annum. Some lenders might charge a processing fee for the loans.