Owning a house is a cherished dream for many. While some prefer ready-to-move-in options, others desire a home that is custom-built to their tastes. If you’re looking to build your dream home, financing options like home construction loans can make the process easier. These loans provide access to funds at various stages of construction, ensuring that your project moves forward smoothly.

This article will walk you through the features of such loans and the documents required for home construction loans to ensure a smooth application process.

Features of a Home Construction Loan

Here is an overview of the common features of a home construction loan:

Competitive Interest Rates

Most lenders offer competitive interest rates on home construction loans, but the final rate depends on factors like your credit score, income stability, and the loan amount requested.

Loan-to-Value (LTV) Ratio

The LTV ratio determines the maximum loan amount a lender can provide based on the total value of the property. It varies from lender to lender, with typical LTV ratios ranging between 70% to 90%. Higher LTV ratios may require additional documentation or higher credit scores.

Loan Tenure

The tenure of a home construction loan can typically extend up to 30 years. However, the exact duration may vary depending on the lender's policies and the borrower's repayment capacity.

Eligibility Criteria

Borrowers must meet specific eligibility criteria to qualify for a home construction loan, which can vary across lenders. Common criteria include age, income, employment stability, and credit history. It’s important to verify these requirements before applying to avoid any hiccups during the application process.

Documents Required for Home Construction Loan

Let’s take a look at the documents required for a home construction loan to make sure you have them at hand at the time of application.

Generally, there are some common construction loan documents required and specific ones according to your employment and residential status.

Common Documents

The documents needed for a construction loan typically required by all include:

• Identity proof like PAN card, Voter's ID, and Driving licence.
• Proof of residence like an Aadhaar card, the latest electricity bill/piped gas monthly bill, ration card, and property tax/water bill.
• Account statements to prove your financial stability and transaction history.
• If you have any previous or existing loans, you must provide their details and loan account statements.
• Passport-size photographs.
• Property-related documents such as sales deeds, title deeds, land ownership documents, property registration, approved construction plans, building permits, and No Objection Certificates (NOC) from relevant authorities.
• A duly filled out loan application form.

Please note that the specific documents required for a home construction loan vary from lender to lender.

Documents Required for Salaried Individuals

The construction loan documents required for salaried individuals are as follows:

• Salary slips from the last 3 months or as specified by the lender.
• Form 16 or Income Tax Returns for the past 2 years.
• Past account statements with clear salary credits, typically for the last 6 months.
• Employment proof such as an appointment letter or joining letter from your organisation.
• Copy of employee I-card
• Yearly increments, if applicable, showcasing any salary increase.
• If your present job is less than 2 years, you might need to present a relieving letter from your previous employer.

These are the general construction loan documents for the salaried. The exact document requirements will depend on your individual profile and the lender’s policy at the time of loan application.

Documents Required for Self-Employed Individuals

The documents required for house construction loans for self-employed individuals are as follows:

• Form 16 or Income Tax Returns for the past 2 years.
• Financial statements that have been audited by a chartered accountant wherever applicable.
• Primary account statements for typically the past 6 months to prove your financial stability and transaction history.
• Balance sheet and profit and loss statements for the last 3 years.
• A processing fee cheque issued from your business account.
• If applicable, Goods and Services Tax (GST) registration details.
• Memorandum of Association (MOA) and Articles of Association (AOA) for companies.
• Partnership deed for partnerships.
• Business incorporation certificate, if applicable.
• Business address proof such as electricity bills in the name of the business and lease agreement or property ownership documents.
• Business profile on your company’s letterhead with an overview of your business, its activities, and other relevant information.

These are the general documents needed for construction loans for the self-employed. The exact document requirements will depend on your individual profile and the lender’s policy at the time of loan application.

Please refer to the specific documents required for a home construction loan by your preferred lender for the most accurate list.

Things to Keep in Mind While Applying for a Home Construction Loan

Apart from gathering the required documents, your construction loan checklist should include the following points:

• The home construction loan amount is typically disbursed in instalments, aligned with the completion of different stages of the construction (e.g., foundation, structure, roofing). This ensures that funds are released as the construction progresses. While most lenders prefer this method, some may offer a lump sum disbursal option.
• Many lenders allow you to prepay a part of your loan or settle the loan in full before the end of the tenure. However, prepayment policies vary by lender, and some may charge a fee for early repayment. Make sure to review your lender's prepayment terms.
• You can increase your loan eligibility by applying jointly with a co-applicant, such as your spouse, children, parents, or siblings. Having a co-applicant with a strong credit score and stable income can strengthen your application. Joint loans can also help share the repayment burden.

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Conclusion

The documents required for home construction loans may vary across lenders but typically include proof of identity, residence, and income, among others.

If you’re considering applying for one, SMFG Grihashakti offers home construction loans at attractive interest rates. You can easily apply online and choose a flexible repayment tenure of up to 30 years. Use our free online home loan EMI calculator to estimate your monthly payments and plan your budget effectively. Apply online today to take a step closer to building your dream home.