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Home Construction Loan vs. Home Loan - Know the Difference

Aman Khanna

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When it comes to buying a home, all of us want it to be perfect and within our affordability. However, a dearth of money can force you to look for owning a ready-to-move home or construct one with the help of the home finance.

Many people are confused when it comes to selecting a viable financing option to fund their home purchases. It’s because they may get issues when it comes to selecting the Home Loan or the home construction loans as their needs for a home purchase may be different.

In the same context, here are some vital insights into home construction loans and Home Loans as they are compared on different crucial parameters.

The loan Application Process

The application process of a Home Loan is much simpler and easy-to-comprehend when pitched against than that of the home construction loans. For availing a Home Loan, you are only required to furnish some basic KYC, income details along with property’s paper for verification. On the other hand, the home construction loans demands an elaborate formalities such as KYC, income details along with plot’s legal authorization letter from local Municipal Corporation, map of the land from a known engineer, property tax details and more. Thus, the application process of a Home Loan is much easier when pitted against the home construction loans.

Loan Tenor

Since a Housing Loan is a long-term liability, you need to be cautious while choosing a House Loan tenor. Selecting a wider tenor can help you pay lower EMIs while opting for a shorter tenor will mean paying higher EMIs, affecting your monthly expenses. Home Loans can give you as wide as 20 years for repayment while home construction loans can give 10-15 years.

Home Loan Interest Rates

When it comes to availing a Home Loan , you have a better chance of enjoying lower Home Loan interest rates. It is because the number of banks and non-banking finance companies (NBFCs) offering the Home Loan is higher. It means comparing varies deals and then making a decision is easy. On the other hand, home construction loans are available from a handful of lenders which means Home Loan interest rates being on the higher side.

Loan Disbursal Process

You may be availing a Home Loan option to fund the purchase of a home or a plot on an immediate basis, and a delay in the loan amount disbursal may cripple the purpose. Compared to the home construction loans, Home Loans have a fairly fast disbursal process. The reason for this could be attributed to the lengthy documentation and approval process of the home construction loans compared to Home Loans. Also, with many players offering online Home Loans, there is a stiff competition among them. One toppling other to credit money in borrower’s bank account has rightly benefitted the customer.

Loan Amount

Some of the online Home Loan service providers may even provide a loan as high as 90% of the cost of the building that you wish to purchase. Hence, you need to pay only a lesser amount as down payment and need not worry about other portion. On the other hand, home construction loans may give you between 70-80% of the cost of the land/plot. It means paying more out of your pocket, and your current financial condition or may not sanction it.

The Bottom Line

You just saw the difference between the House Loans and the home construction loans. By now, you may be clear whom to go for if you are set to apply for a Housing Loan! All the best for your home finance application!


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