A construction loan for a house is a specialised type of financing meant specifically to fund the building (or major renovation) of a home, rather than buying a ready‐built property. A construction loan is disbursed in stages, aligned with the progress of the project (foundation, walls, roof, finishing, etc.).
Rather than giving you the full loan amount up front, the lender releases money only when each milestone is completed and verified.
During the construction period, you typically pay interest only on the amount disbursed so far. Principal repayment generally starts only after construction is complete or in later phases.
Once construction is finished, many lenders allow you to convert this construction loan into a regular home mortgage. Hence, they start normal EMI payments for both principal and interest.
A construction loan gives you the flexibility to finance a custom structure on your own land.
Some lenders let you stretch the repayment period up to 30 years, making the EMIs more manageable.
Interest and principal paid on construction loans are often eligible for tax deductions under Indian Income Tax laws (for example, under Section 80C and Section 24). But many of these benefits are only available after construction is completed.
Disbursing the loan in phases means you only pay interest on the funds you’ve actually received, which reduces interest burden during construction.
I hope you understood what is a construction loan for a house.
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- Residential status: Must be an Indian or NRI.
- Age: 18-65 years.
- Income: Minimum income of Rs. 25000 per month.
- Credit score: Above 750.
- Employment: salaried or self-employed individuals.
| Bank | Interest rate | Best for |
| State Bank of India | 6.95% p.a. | Low Interest Rates |
| HDFC Bank | 7.35% p.a. | Long-term Requirements |
| ICICI | 7.70% p.a. | Repayment post retirement |
| DHFL | 9.50% p.a. | Easy Mode of Repayment |
| Canara Bank | 6.90% p.a. | Low Processing Fees |
| Aditya Birla Housing Finance | 9.00% p.a. | Best for self-employed |
| Bank of Baroda | 6.85% p.a. | Maximum number of top-up loans |
| Federal Bank | 8.15% p.a. | Best Loan-to-Value |
| PNB Housing Finance | 9.25% p.a. | Non-Resident Indians (NRIs) |
| Bajaj Housing Finance | 9.05% p.a. | Higher loan value |
What is a construction loan for a house?
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2021-09-21T17:18:15+00:00 2021-09-23T19:07:27+00:00Comment
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