October 24, 2021

The home loans are the ones that are taken for the purchase of the flat or the row house from the real estate developer. While as the home construction loans are the loans that are taken by the individual for the construction of their homes on their individual plot. The interest rates charged for both the purpose are same and thus are considered as similar kind of loans. The home loans can be availed at an interest rate as low as 6.50% per annum. The home loans can be availed by the borrower from any of the banks irrespective of he/she has a bank account at any of the banks. Ideally, the bank which has got a good reputation in the markets and the ones that charge the lowest interest rates and processing fees should be taken into consideration while applying for the loans. The individual borrower should have a good credit score while applying for the loans. The bank expects a minimum score of 700 points for the application of the loan to get approved. The home loans interest rates are reducing on a gradual basis as and how the repo rate of the RBI is getting reduced.

The home construction loans can be availed 80% of the project cost including the interiors of the house. The bank requires proper income proof for the disbursement of loans. An independent bungalow can be constructed on the plot by availing of loans. The project cost is estimated by the bank officials and accordingly, only the loans can be approved for an individual. If an excess of the amount is demanded by the applicant beyond the basic project cost the bank may reject the loans of the borrower. The home loans when purchased as a ready possession flat or a ready possession row house then in that case the total cost including the land cost and the construction cost is taken into consideration and accordingly the loan amount is approved. The home construction loans are approved only if the applicant has a plot of their own with clear titles then in that case home construction loans are approved. The home construction cost is estimated according to prevailing rates going on of the construction contractor and according to the FSI approved by the town planning authority. The housing construction loans are approved on similar conditions as the ones for the home loans.

Benefits of home loan:

  • The borrower can claim tax benefits under income tax 80C on the principal amount and section 24 under the interest repayment. The borrower can continue to avail of tax benefits as long as the tenure extends for the loans.
  • Availing loans can help individuals keep their existing savings locked into financial instruments and repay the loans from the running income.
  • The loans help the borrower repay loans for a longer span of time as long as 30 years, depending upon the age of the applicant.
  • For the first time, home buyers can avail subsidy of Rs.2.67 lakh from the PMAY scheme being launched by the government.

Difference between home loans and home construction loans:

  • Though the interest rates charged by the bank for home loans and home construction loans are the same, the home construction loans are charged a bit lower charges than the home loans.
  • The total loan amount in the case of home loans is calculated on the construction cost and also the cost of the land. While as the home construction loans the land cost is excluded and only the home construction cost is included for the approval of loans.
  • Home construction loans can be availed only if the individual has his own plot. While the home loans can be availed even in case of an individual not having their own plot.
  • The home loans are approved based on the total cost irrespective of the transaction value. While as the home construction loans the cost of the construction
  • The home loans can be disbursed by the bank at one go. While the home construction loans can be disbursed only in part installments as and how the progress is there of the construction of the house.
  • The home loans can be approved for a longer tenure while the home construction loans can be approved for a shorter tenure.
  • The documentation required for the home loans is different from that of the home construction loans.
  • The limit up to which the home loans can be approved is higher depending on the locality in which the property is purchased. While in the case of home construction loans the cost of construction is similar at any location only the minor variation can persist thus the number of loans approved can be lower compared to home loans.

Availing the home loans or home construction loans totally depends upon the situation of the individual. If the individual owns a plot then home construction loans can be taken while as in case if the individual does not own the plot then case home loans can be taken. The interest rates charged & other conditions of the loans are one and the same while there could be minor differences in the interest rates and processing fees been charged by the lenders.

Steve Campbell

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