Buying an apartment is convenient and quick. Yet, many people dream of building their own house from scratch. But building a house can be an expensive affair. You would have to check your eligibility for a home construction loan, lenders’ requirements, and interest on a loan for house construction.

After all, you have to plan for the expenses. You would need to hire designers, architects, masons, painters, carpenters, electricians, and plumbers. You may also wish to use only quality materials. Most people do not want to rely on savings for constructing a house. So, taking a loan for house construction is the best alternative.

Kaustav, a web designer, had a plot of land in Noida. He wanted to build his own house here. He had his plans appraised and the cost estimate came to Rs 80 lakh. He applied for a house construction loan from a reputed lender. Soon, he was able to make his dream come true with no hassle.

Constructing a house is different from buying a house. That is because you cannot estimate the cost accurately beforehand. Even if you do a thorough estimation, something or the other will come up and bloat your budget. So, your financing structure will have to be open-ended.

If you apply to get a home construction loan, lenders will offer you a facility like a big credit card. This card has a high upper limit. But you can use it only for construction expenditure. After your house is complete, it will act as a mortgage against the loan.

If you have a good idea about the amount of money you will need, you can apply for a straight-up loan for a fixed amount. The repayment may start immediately, after a moratorium period, or even after the construction is complete.

Are you planning to take a loan for house construction? In that case, here are a few points you should consider:

Step 1 for applying for home construction loan—lenders: You can apply for a home construction loan from a number of different lenders. Banks like HDFC are a good bet. So are non-banking financial companies (NBFCs) like Bajaj Finserv. In general, it is a good idea to shop for the lowest interest rate. Look also for maximum flexibility in terms of EMI. Each lending company’s website or brochure will give you the information you need. Base your comparison on this.

Step 2 for applying for home construction loan—eligibility calculator: The maximum amount of loan available to you depends on many factors. These include your monthly income and the value of the plot on which you are constructing. Also important is how much of the construction cost you can contribute. You will have to pay 20–25% of the total estimated cost as down payment. Your creditworthiness in terms of CIBIL rating will also matter. So will the amount of EMI you already pay every month.

Step 3 for applying for home construction loan—documents required: You will need to submit some documents with your loan application. The lender’s website should provide a list of the documents required. Most lenders nowadays, whether ICICI Bank, Bajaj Finserv, or Tata Capital, provide all the necessary details on their websites. You will have to get these documents scanned or photocopied for submission. Apart from the standard KYC documents, you may need to include the following:

  1. Licence certificate of qualified builder
  2. Detailed plan of house design
  3. Value appraisal of house by a qualified appraiser
  4. Ownership document for land
  5. Building permission from municipal authorities

Step 4 for applying for home construction loan—interest rates negotiation: Although many lenders offer a fixed rate of interest, there is scope for negotiation. You can base your negotiation terms on your high CIBIL scores and high percentage of down payment. Any previous positive loan experience with the lender will also help. Some lenders even offer discounted rates of interest for eco-friendly house plans.

It is now easy to realise your dream of building your own house. Just get hold of a house construction loan that fits your requirements.