A home Construction loan is offered by Banks and other financial institutions that provide low-interest loans with simple documentation and adjustable interest payment plans to help you build a house or housing property. You may also use this loan to construct the building of a partially completed home.

There are numerous housing loans available on the market to assist you in constructing your dream home. A specific set of documents is needed for a house construction loan application.

The funding is divided into instalment payments depending on the loan amount, and loan-to-value ratio, and utilized for the purpose. You will receive the loan amount at predetermined intervals as your construction project progresses.

According to the construction progress, your bank will have pre-determined requirements for disbursing funds. The lender closely monitors the progress and only after the preceding stage is accomplished will the next stage’s amount be allocated.

The home loan makes for simple planning of a variety of construction expenses and has a long payback time frame of more than 25 years. Apart from this, there are many more benefits of a home construction loan mentioned below:

  1. Rate of interest that is comforting and easy to pay
  2. Loan tenure can be more than 25 years.
  3. Loan-to-value ratios are as high as 100% of the building approximate or 90% of the house value, whatever is lesser.
  4. Munificent Tax Benefit for the borrower


Standard Document for Home Construction Loan

1. Firstly, a basic document required for applying for any loan is Age Proof. You may need to produce a document having your age mentioned. Below are a few examples:

  • – Life Insurance Policy
  • – PAN Card
  • – Passport
  • – Birth Certificate
  • – School leaving certificate
  • – Driving License

2. Secondly, the bank needs to verify your place of residency, this is done by verifying the following documents below:

  • – Bank Statement
  • – Voter ID
  • – Property Tax Receipt
  • – Property ownership papers

3. Third, Bank needs the borrower’s photo identity proof based on the following document:

  • – Passport
  • – Aadhar Card
  • – Driving License
  • – Voter ID

4. Outstanding loan information – This information must be presented via borrowing bank statements.

5. Bank also ask for a passport-size photo of the borrower.

6. Banks keep the papers regarding houses required in construction.

7. Completed home construction loan application form.

8. Permission from Municipal Authority.


Documents required for home construction loan based on employment

When having applied for a home construction loan, some documents are required from the financial institution. These are determined by the borrower’s profession and residency status. Some aspects of the home construction loan required documents for salaried, self-employed, and Non-Resident Indians varies.


Documents Needed for Non-Resident Indians (NRIs)

– Earning verification – Abroad salary bank details for Indian NRO/NRE bank records for the preceding 6 months.

– Processing fee cheque – Approved from a current or salary account, based on the borrower’s condition.

– A credit score – NRI applicants must provide a credit report from their current state of residence.


Documents Needed for Self-Employed Individuals

Excluding the standard documents, self-employed individuals must submit the following:

– Income Proof: Bank ask for income proof in order to decide how much to give credit to the borrower. They may ask for the following statements below:

  1. OD and CC financial records for the preceding 6 months
  2. Statement of operational processes for the previous six months
  3. Profit and Loss Projection Statement for the Previous Three Years

– Cheque for processing fee – It is drawn from your business bank account

– Business Proof: You may show the following document below as business proof:

  1. Annual Tax Return
  2. 1099 Forms
  3. Bank Statements
  4. Profit and Loss Statements
  5. Pay Receipts for Self-Employed People

– Certificate of Establishment of a Business.

– On the letterhead, include your company profile.

– Returns on income for the past couple of years (minimum 2 years)


Documents needed for salaried employees

Borrowers who receive salary regularly must submit the following documentation.

– Income documentation consists of a photocopy of the last six months’ salary account and bank details.

– Cheque for processing fee – Obtained from the salary account.

– Salary Payslip – A print of one of the attached statements:

  1. Letter of appointment
  2. Salary slips for the last three months, certified copy Form 16
  3. Annual raise letter


Considerations before applying for a home construction loan


1. Calculate the EMI

People who apply for home construction loans must pay an EMI that includes the principal sum as well as the interest payment. It is critical to determine the EMI required and make comparisons to your income. Such an estimation assists in determining whether you are able of paying off the loan with his current income.


2. Take a loan from the appropriate financial institution

A variety of financial companies lend money for the purchase or construction of a new home. People should choose a reputable and stable organization to have their loans approved.


3. The rate of interest

Loans come in a variety of forms, within each list of conditions. The higher the interest compensated, the longer the term in the bank. As a result, borrowers should select the appropriate loan tenure and interest rate in order to pay back the loan without economic difficulties.


Points to bear in mind

Borrowers looking for a construction loan should be aware that not all financial institutions offer these types of loans. So, once you go to the bank’s local branch, visit their website to see if they provide home construction loans.

Another thing that borrowers ought to be conscious of is that banks may not distribute the whole amount owed all at once, but rather in instalments, depending on the phase of the building work.

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