Difference Between Home Loan and Construction Loan
May 28, 2024
Home Loan vs Construction Loan
There are many loan options in the market today. If you are planning to buy a new home, it is most likely that you are hearing different terms like home loans and home construction loans. While both options have their benefits, it is important to understand which one is best suited to your particular needs.
In this blog post, we will cover the exact difference between home loans and construction loans.
Table of contents
- What is a home loan?
- What is a home construction loan?
- Key differences between home loans and home construction loan
- Conclusion
What is a home loan?
A home loan is a type of loan provided by a lending institution to allow the purchase of a home. With a home loan, you, as the borrower, agree to repay the borrowed amount over a set period, usually ranging from 15 to 30 years*, along with interest. The home itself serves as collateral for the loan, meaning that if you fail to pay back the loan, the lender has the right to foreclose on the property to recover the outstanding debt.
What is a home construction loan?
A home construction loan is a type of home loan specifically designed to fund the construction of a home from the ground up. Unlike a mortgage, home construction loans provide funds that are typically disbursed in stages as construction progresses, allowing you to pay contractors and cover materials along the way.
When you apply for a construction loan, keep in mind that the process might be different from a regular home loan. Lenders typically require detailed plans and specifications for your construction project. While the collateral for the construction loan is typically the land where the property is to be built, in some cases, the lender may require your existing property as collateral.
Difference between Construction Loan and Home Loan
Let's understand the key difference between home loans and home construction loans so that you can decide which one fits your needs best.
| Key area |
Home loan |
Home construction loan |
| Purpose/ Property type |
To purchase a pre-constructed or ready-to-move-in property. |
To finance the construction of a new home. |
| Disbursement |
Lump sum at property purchase. |
Disbursed in stages as construction progresses. |
| Application Requirements |
Property details, income proof, credit score. |
You may be asked to share a detailed construction plans, specifications, budgets, contractor details. |
| Loan repayment |
It begins immediately after loan disbursal. |
The construction loan is repayed in form of instalments that are linked to various stages of construction |
| Loan Tenure |
Generally 15-30 years. |
Shorter tenure during construction, typically converting to a regular home loan after completion. |
Apply Now
Conclusion
Understanding the key differences between these loan types allows you to opt for a loan that aligns with your specific needs and goals.
SMFG Grihashakti offers home loans up to INR 1 crore* on under-construction, new, and resale properties at attractive interest rates and flexible tenures of up to 30 years*. Our dedicated team of experts can help you decide the best loan option and interest rates that suit your needs. Contact us today!
Disclaimer: *Please note that this article is for your knowledge only. Loans are disbursed at the sole discretion of SMFG Grihashakti. Final approval, loan terms, disbursal process, foreclosure charges and foreclosure process will be subject to SMFG Grihashakti’s policy at the time of loan application. If you wish to know more about our products and services, please contact us.