While people can avail of home loans to get their own house constructed, the process of approval and disbursement of such a loan, is different from that of a regular housing loan
People generally take home loans, either for the purchase of a ready-to-move-in house or for booking an under-construction property. However, people can also avail of home loans to get their house constructed – either by themselves, or by employing a contractor to construct the house – on a plot that they own. Such loans are commonly termed as ‘construction loans’. The process of approval and disbursement of a construction loan, is different from that of a regular housing loan.
Documents to be attached with application
In addition to the regular ‘know your customer’ (KYC) and income documents, to avail of a home loan for constructing a house on a plot of land owned by you, you will have to provide the prospective lender with all the relevant documents that establish your title and ownership of the plot of the land. The plot of land can either be a freehold plot, or it can be allotted by any development authority, like CIDCO, DDA, etc. You can also avail of a loan on a leasehold land, where the lease is for a reasonably long period of time. You will also have to submit a no- encumbrance certificate pertaining to the property.
In addition to the documents of the plot, you will have to submit the plan and layout of the proposed house, duly approved by the local municipal authority or gram panchayat. You will also have to submit an estimate of the cost of construction, which has been certified by a civil engineer or an architect. Based on these documents, if the lender is satisfied about your overall eligibility and the estimate of the cost submitted by you, it will sanction the home loan subject to the usual terms and conditions.
As with any other home loan, the borrower will have to contribute the margin money towards construction of the house, depending on the amount of home loan that is requested. While calculating your contribution, the cost of the plot is also taken into account, in case the same has been purchased recently. However, the value/cost of the plot is not taken into account while computing your contribution, in case the same has been inherited by your or is received as a gift or if it was purchased long back.
Disbursement of the loan
The disbursement of the construction loan is done in parts, and the money is released, based on the progress of the construction, similar to the process followed when an under-construction flat is booked with a developer. However, the lender will not disburse any money till you bring in your own contribution as agreed and provide proof of the same. For availing disbursements from the bank, you will have to submit photographs of the house and certificates from an architect or civil engineer about the stage of completion of the house.
The lender may rely on the certificate and photographs submitted by you, or it may decide to depute its own technical person to verify the same. So, if the construction is completed quickly, the disbursement of money by the lender will also be faster.
Leading lenders like SBI, HDFC Ltd, ICICI Bank, etc., are active in the construction loan segment. However, not all the lenders that provide home loans, will also provide construction loans. Some lenders are not comfortable funding such self-constructed properties.