Plot or Home Construction Loan
A plot loan facilitates the purchase of land for future development, while home construction loans finance the building process on that land. Borrowers can opt for a loan for plot purchase to cover land costs or a plot and construction loan that combines both the land and construction expenses. For those looking to streamline financing, a loan for plot purchase and construction offers a convenient solution. Understanding these options is essential for anyone planning to build their dream home, ensuring they select the most suitable financing path.
Features & Benefits of Plot or Construction Loan
Several features and benefits of plot loan makes it an attractive option for prospective homeowners. Some such features and benefits of construction and plot loans are listed below:
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Attractive Interest Rates: Plot and construction loans often come with competitive interest rates, making them affordable for borrowers. The rates may vary based on the borrower’s credit score and loan amount.
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No Prepayment Charges: RBI has barred banks and NBFCs from charging prepayment penalties on floater plot loans, allowing borrowers to repay the loan early without additional costs. This can significantly reduce the total interest paid over time.
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Flexible Repayment Tenures:Lenders offer flexible repayment tenures ranging from 5 to 20 years, enabling borrowers to choose a comfortable EMI based on their financial situation. This flexibility helps in managing cash flow more effectively.
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Convenient Balance Transfer Options:Borrowers can transfer their existing plot loans to another lender offering better terms and lower interest rates. Balance transfer options provide an opportunity to save on interest costs and avail better services.
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Tax Benefits: Borrowers may not be able to get tax deductions on the interest and principal of the plot loan. However, they can claim the same on the repayments of construction loans on the plot purchased through a plot loan.
Eligibility Criteria for Plot or Construction Loan
Lenders set fixed eligibility criteria for plot or construction loans to assess the borrower’s repayment ability, reduce default risk, and ensure compliance with financial and legal standards. The table below aims to acquaint you with the general home construction loan eligibility criteria:
| Age | Nationality | CIBIL Score | Employment Status | Work Experience | Income |
|---|---|---|---|---|---|
| 18 to 70 years | Indian citizen | 750 or more | Salaried, self-employed professional, or self-employed non-professional | Minimum 1 year in the current organization (If salaried) | Must have a stable income |
Plot or Construction Loan Interest Rate
The plot loan interest rate can be classified as either fixed or floating. Understanding the intricacies of interest rates can help borrowers make informed decisions and potentially save significant amounts over the loan term. Several factors influence the construction loan interest rates offered, including the borrower’s credit score, income stability, loan amount, and tenure.
Have a look at the plot purchase loan interest rates of the top banks and NBFCs in India:
| Bank/ NBFC | Interest Rate |
|---|---|
| Bank of Baroda | 8.40% p.a. onwards |
| SBI | 8.50% p.a. onwards |
| PNB Housing Finance | 8.50% p.a. onwards |
| LIC HFL | 8.50% p.a. onwards |
| IDFC First Bank | 8.55% p.a. onwards |
| L&T Finance Ltd. | 8.65% p.a. onwards |
| HDFC Bank | 8.70% p.a. onwards |
| Kotak Mahindra Bank | 8.75% p.a. onwards |
| Tata Capital | 8.75% p.a. onwards |
| Axis Bank | 8.75% p.a. onwards |
Plot or Construction Loan Fees and Other Charges
Plot or construction loans come with various fees such as processing charges, legal fees, and administrative costs. These additional charges can vary between lenders and impact the overall loan cost. It's crucial to review all fees and charges before selecting a loan to avoid unexpected expenses.
Listed below are the general construction loan fees and charges:
| Processing Fee | 0.25% - 1.50% of the loan amount + GST |
|---|---|
| Foreclosure/ Prepayment Charges |
Floater: Nil
Fixed: Banks and NBFCs may charge or waive off the foreclosure charge
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| CERSAI Charges | As per actuals |
| Stamp Duty | As per actuals |
Documents required for Plot or Construction Loan
Applying for a plot or construction loan requires documents like identity and address proof, income statements, and property-related papers. These documents help lenders verify the applicant’s credentials and the legality of the property. Providing accurate and complete documentation ensures a smooth loan approval process.
Here is a detailed list of home construction loan documents required:
- Identity Proof: Aadhaar Card, PAN Card, Voter ID Card, etc.
- Address Proof: Voter ID Card, Electricity Bill, Telephone Bill, Passport, etc.
- Age Proof: Passport, PAN Card, 10th Class CBSE Certificate, etc.
- Income Proof for Salaried: Recent ITR, Form 16, Salary Slips, Bank Account Statements, etc.
- Income Proof for Self-Employed: Recent ITR, Profit and Loss Account Statements and Balance Sheet of the Firm, Bank Account Statements, Business License Details, etc.
- Plot Related Proof: Title Deeds, No Objection Certificate, Property Tax Receipts, Deel of Sale, Approved Plan, Encumbrance Certificate, Revenue Receipts, Layouts/ Drawings of the Plot, etc.
- Other Documents: Duly-filled application form, Processing Fee Cheque in favour of the lender, etc.