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Home Loan vs. Home Construction Loan

Home Loan vs. Home Construction Loan

For every house-buyer, financing is the most important concern. The finance option that you choose depends on what type of property you have your eyes set on. Some of you might want to buy an already-built house whereas others might want to invest in building the house the way they want. Financial institutions offer home loans for both kinds of home purchasing. 

Lenders offer home loans for paying the cost of constructing a house or a building in your existing property. It is a short-term loan offered for the period when the construction work is in progress. Whereas, there are home loans used to purchase a fully-constructed house.

Both these house financing options help you in acquiring your dream house, but there are some differences between the two. Given below are the vital differences between a home loan and a home construction loan.

Additional Read:- Know What is the Right Time for Your Home Extension

Points of Difference Home Loan Home Construction Loan
Tenure Home loans usually have a long loan tenure that can go up to 30 years. If you are opting for a home loan from Tata Capital then you have the flexibility to choose the amount, tenure, and the EMI period. Tata Capital also offers a home loan EMI calculator to help you plan your monthly finances better.   Home construction loans are shorter when compared to home loans, which is why there is always a higher amount of EMI involved.  
Documents To avail a home loan, your KYC documents, income proof, salary slips, bank statements, processing fee cheque, credit report, existing loan details, residential and office address proof, identity proof, age proof, etc are needed. To avail a home construction loan, along with submitting your KYC documents and income proof, you will have to provide your potential lender with all the relevant documents that can establish your ownership of the plot. Your plot’s legal authorisation from the local authority is also needed. You will also have to provide a no-encumbrance certificate of your property. With the documents of your plot, you also have to provide your detailed construction plans and estimated cost of construction authorised by a civil engineer or architect, construction table, etc. 
Disbursement   In a home loan, your whole loan amount is disbursed altogether.   In a home construction loan, the loan amount is not disbursed at once. The amount is broken down into instalments, based on the loan size, loan-to-value ratio, and the progress of construction. You will get the loan amount at designated intervals as development is made in your construction project. Your lender will have pre-determined criteria for disbursing finances, as per the construction advancement. The lender pays close attention to the progress and only when the previous phase is completed, the next phase’s amount will be disbursed.

There is no one way of acquiring your dream house. This is why you should always take into account all the related factors of both home loan options and compare them before choosing. Your decision should be based on calculations after factoring in your income and the after-effects of taking a particular finance option. One thing that you should remember is that no matter which funding option you choose, you should be diligent about paying your home loan EMIs for the whole tenure.

Additional Read:- How can you use home loans for your house extension?

If you have opted for Tata Capital to provide you with a home loan then you can use our home loan EMI calculator available on our website to better plan your monthly budget allocations. Tata Capital provides quick housing loans at attractive home loan interest rates. So, if you have made your choice between the two loan options, you can head to our website and check your home loan eligibility and apply for a home loan with us!

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