Understand Home Loans and Construction Loans

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Finances are always the primary concern whenever it comes to purchasing your home. 

Most often, people buy a house that’s already been built, while some prefer to construct their own home. The latter would need to apply for a home for the construction of their house.

Banks and financial institutions provide people with home improvement loans. These loans are usually taken to carry out major repairs, renovations, and alterations. 

Home construction Loan are typically offered for the duration of the construction of your house. 


As a result, it is more akin to a short-term loan granted for the period of the construction process. Other home loans are given to purchase an entirely constructed house.


In this article, we shall focus on the differences between a home loan and a loan taken for constructing a house.


Home loan


Home loans have long tenures that can stretch up to 30 years. This period allows you to repay the amount borrowed in smaller EMIs. You get to choose the amount based on your home loan eligibility. You can also select the loan repayment term to get a desired EMI payment amount.


Required Documents

While applying for a home loan, you will need to submit your KYC documents (Identity, age, residential & office address proof). You will also need to provide income proof documents like salary slips and bank statements. 


Additionally, you need to present a cheque for the processing fee, credit report, and details on any existing loans.



In the case of a home loan, the entire loan amount is disbursed at once.


Home Construction Loan


These loans are shorter in duration in comparison to Home Loans, which naturally results in higher amounts of EMI to be paid.


Required Documents

Apart from the standard KYC and income proof documents, you will need to submit plot ownership documents. 


You also need to produce the legal authorization letter from the local authority along with a no-encumbrance certificate. These documents must be accompanied by a detailed construction plan and a construction cost estimate approved by an architect or civil engineer.



In this loan, the amount is paid out in instalments. These instalments are determined by the size of the loan, the loan to value ratio, and the construction progress. 


Finances will be disbursed in accordance with predetermined criteria, with the construction process divided into phases. The amount for each phase is released only after the previous stage has been completed.


You can select either one of the home loan options depending on the unique requirements of your dream house. After comparing both the loan options, you can decide which one is more suited for your needs. 


Today, financial institutions make it easy and accessible for all to avail of loans at reduced interest rates and free from documentation hassles. 


No matter which funding option you choose, you must pick a loan, consider the entire tenure and choose an EMI option that goes easy on your pockets and is convenient to repay.