Banks and housing finance companies (HFCs) offer home construction loans for consumers looking to construct their residential home property on their existing plots. Lenders provide home construction loans to both existing home loan borrowers and new customers. Most lenders offer this facility either through their traditional home loan product or as an independent offering branded as ‘home construction loans’ within the broader category of home loans.
Features of Home Construction Loan
Interest Rates
Lenders usually provide home construction loans at floating interest rates. The interest rate for loan applicants availing home construction loans depends on factors like their credit score, monthly income, occupation profile, employer’s profile and loan amount. The interest rates of home construction loan are usually the same as 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 Lakh | Above Rs. 30 Lakh to Rs. 75 Lakh | Above Rs. 75 Lakh |
| SBI | 8.50% - 10.15% | 8.50% - 10.05% | 8.50% - 10.05% |
| HDFC | 8.50% - 10.35% | 8.50% - 10.60% | 8.50% - 10.70% |
| LIC Housing Finance | 8.45% – 10.10% | 8.45% – 10.30% | 8.45% – 10.50% |
| ICICI Bank | 9.00%-9.80% | 9.00%-9.95% | 9.00%-10.05% |
| Kotak Mahindra Bank | 8.85% onwards | 8.85% onwards | 8.85% onwards |
| PNB Housing Finance | 8.50% - 14.50% | 8.50% - 13.00% | 8.50%-10.85% |
| Punjab National Bank | 8.65%-9.60% | 8.60%-9.50% | 8.60%-9.50% |
| Bank of Baroda | 8.50% - 10.65% | 8.50% - 10.65% | 8.50% - 10.90% |
| Union Bank of India | 8.75% – 10.75% | 8.75% – 10.95% | 8.75% – 10.95% |
| IDFC First Bank | 8.85% onwards | 8.85% onwards | 8.85% onwards |
| L&T Housing Finance | 8.65%-8.75% | 8.65%-8.75% | 8.65%-8.75% |
| Bajaj Housing Finance | 8.70% onwards | 8.70% onwards | 8.70% onwards |
| Tata Capital | 8.95% onwards | 8.95% onwards | 8.95% onwards |
| Federal Bank | 10.15%-10.20% | 10.20%-10.25% | 10.25%-10.30% |
Note: Rates as of 22nd March 2023
Loan-to-Value Ratio
The LTV ratio of home construction loans is the total proportion of a property’s value that a lender can finance through the loan. The LTV ratio for home construction loans 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 for a home construction loan applicant based on factors including the applicant’s credit profile, their 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 home 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 EMI of his home construction loan 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 home construction loan to within 50% of their net income.
Availability of Balance Transfer Facility
Existing borrowers of home construction loans 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 construction loan. Lenders may also waive off the processing fees on a partial or complete basis for loan applicants availing a home construction loan.
Prepayment Charges
RBI guidelines prevent banks and HFCs from charging prepayment fees for home 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 Home Construction Loan
The eligibility criteria for 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 availing home construction loans are as follows:
- Lenders usually offer home construction loans to both Resident and Non-Resident Indians (NRIs).
- Age: Banks and HFCs usually approve home construction 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 construction loan.
- Borrowers of home construction loan 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 home 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 home 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.