Home Loan

Hidden Factors You Should Know About Home Construction Loan


Everyone wants to reside in their ideal home. If one has planned to construct their own home rather than purchasing a ready-to-move-in, the experience will undoubtedly be one of its kind. 

Numerous house financing organisations provide loans for home development to make your aspirations come true and for you.

Here is a comprehensive explanation explaining a home construction loan, the many types of home construction loans, how to apply for one, and the benefits of doing so.

Introduction to Home Construction Loan

With a home construction loan or home renovation loan, you may borrow money to build your own house rather than buy an apartment. The lender disburses the funds in phases as each home construction stage finishes. If you want to apply for a loan to build a house, you must give the lender a complete building schedule, a construction plan, and a reasonable construction budget.

Your loan money will be delivered in stages as needed for each stage of construction after your construction loan is authorised. The lender will visit the building site to assess it or hire a technical team from a different company to do so.

Types of Home Construction Loans

Self-build home Loan

You can choose a self-construction loan if you need money to build a house on a site you have bought or already own.

Plot + Construction loan

A Plot + Construction loan would be ideal if you don’t already have a plot in your name and need money to pay for the plot and the home construction on it. Please be aware that if you only need money to buy a plot and not construct a home, you will need to apply for a property or personal loan, as these are not considered home construction or home renovation loans.

Home Extension or Renovation Loan

If you want to add a new room or a floor to your current house, you can apply for a home extension loan. Similarly, you may apply for a home improvement loan if you want to paint your property, make significant repairs, or give it a new appearance.

Construction-Only Loan

These loans are no longer typically offered by lenders. It is a loan used only for construction and must be repaid after the loan’s term is over. If not repaid, the borrower must get long-term financing.

How to Get a Home Construction Loan?

You’ll typically need the following to be eligible for a home construction loan.

  • A credit score of at least 620 (although the higher, the better).
  • A debt-to-income ratio of up to 45% for evidence of your ability to repay the loan.
  • A down payment of 20% to 25% of the project’s costs. 
  • A signed contract with a licensed and insured builder. 
  • An evaluation of the land and the finished home’s value. 
  • A detailed project plan.

You can acquire a house construction loan from various sources, including banks, credit unions, and mortgage lenders. Start by researching interest rates, closing fees, and other loan features lenders offer in the construction site’s neighbourhood. Keep in mind that, for convenience’s sake, you might choose to obtain both the first construction loan and the permanent loan from the same lender.

Steps to Follow for a Home Construction Loan

Step 1: The borrower must first complete the application form.

Step 2: The candidate must provide all required documentation, including a bank statement, Form 16 and documents proving their identity and ownership of the property.

Step 3: The loan money is subsequently released to the borrower’s bank account in tranches according to the building stage following successful submission and approval.

Hidden Factors to Know About Home Construction Loans

Specified Construction Plan

Building plans and blueprints are the basis for finalising and approving construction loans. Plans cannot be altered after finalising agreements. Therefore, before seeking financing, have a precise blueprint of your home construction details.

Short tenures

The loan term for home building or home renovation loans is often shorter than ordinary home loans. Use one of the many online house loan calculators to estimate your monthly payments before applying for home-building financing.

Eligibility criteria

You must meet the eligibility pre-requisite before applying for a loan for a house building. Meeting the eligibility pre-requisite often entails having a high credit score, stable employment, work experience, etc. In addition, a co-applicant is needed if the site or the property under development is co-owned.


In addition to the standard income and KYC paperwork, a borrower must submit additional documents before receiving approval for house-building financing. You must give your lender the plot paperwork; sales deeds planned home floor plan, an official no-objection certificate from the appropriate authorities, authorised drawings, and other such requirements.

Why Choose a Home Construction Loan?

  • The freedom to design your ideal home. With a construction loan, you can develop your home in whatever design, or layout you wish, unlike when you take out a loan to buy a property.
  • You don’t have to pay interest on the whole amount starting on the first day. Depending on the development stage, a home construction loan is issued. As a result, you will only need to pay interest on the money already given to you.
  • Future construction, remodelling, and enlargement of your home are all permitted. You can easily obtain a home improvement loan and make improvements to your newly constructed home that will make it more comfortable if you decide that it is necessary to renovate your home or add a new floor or room. Plus, you can also opt for a house renovation loan.


A “home construction loan” or “home renovation loan” is the right financing for you if you want to build a house or buy land and build a house simultaneously. Yes, home construction demands commitment, but Piramal Housing Finance always offers simple eligibility for home construction loans.

We provide great interest rates for a home construction loan. Build the house of your dreams by contacting Piramal Housing Finance!