While both loans are types of mortgage loans, there are many significant differences between a Home Loan and a Construction Loan. If you are contemplating seeking a loan for a new house, the type of house you want will decide the type of loan best suited for your housing needs. Before you choose between the two loans, it is ideal that you understand the differences between a Housing Loan and a Construction Loan.
1. Home Loan: This loan is sanctioned with the intent to fund the purchase of a residential property or renovate your existing home. The property in question could be ready for possession or under construction.
2. Construction Loan: This loan is sanctioned to fund the self-construction of one’s property on a vacant plot of land.
If you’re purchasing a house from a developer, you will be eligible to take a Home Loan. However, if you want to construct your own property on a plot of land, you will need to apply for a Construction Loan for financial aid.
Both loan types are excellent fund solutions to property-related expenses with their key specialities. Here is a comparison between a Construction Loan Vs Home Loan
| Factors | Home Loan | Construction Loan |
|---|---|---|
| Repayment Tenor | Home Loans come with an extended repayment tenor that can even stretch up to 32 years. | Home Construction Loans are sanctioned for a shorter term, often spanning up to just 10 to 15 years. |
| Disbursal Stages | In the case of ready-to-move-in properties, Home Loans are usually disbursed in one go, allowing you to direct the whole fund toward your property purchase without delays. | The Construction Loan amount is disbursed in parts, in tandem with the construction stages. Sometimes, the complete disbursal of the sanctioned amount can take up to 5 to 7 instalments. |
| Documentation Requirements** | The documentation ask for a Home Loan is minimal, with only KYC documents, income proof, property papers, and PAN card or Form 60 being mandatory. | The list of documents needed for a construction loan is lengthier; lenders will ask for the plot’s legal certificates issued by local civic bodies, approval from the local municipal corporation, a blueprint of the property’s construction plan from an authorised architect along with the basic documentation. |
| Loan-to-Value Ratio | Home Loan lenders are permitted to sanction up to 90% of the property’s value, as the Home Loan amount to borrowers (based on your profile and eligibility), as per the RBI guidelines. | Lenders usually offer only up to 50 to 70% of the total estimated cost of construction as the loan amount. |
**The list of documents mentioned is indicative. During loan processing, additional documents may be needed. The same will be communicated to you as and when required.
Note: This page is for the purpose for generic information. Bajaj Housing Finance does not offer Construction Loans at this point.
*Terms and conditions apply
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