Dream homes aren’t necessarily bought. Sometimes, we want to make our dream home completely as per our wishes. Brick by brick, wall by wall. Or maybe we want to improve on the house already in existence. This is where home loans for construction or home improvement come into play. Let us delve into the details of this type of loan!
Home loan for home construction.
Many people who apply for home construction loans are unaware of its complete terms. Here’s what you should know before approaching a bank for a home construction loan, so that there are no shockers for you later on.
Most of the major banks provide loans for home construction such as State Bank of India, United Bank of India, Canara Bank, Bank of Baroda, HDFC Bank Ltd, ICICI Bank Ltd, Mahindra Finance, UCO Bank, etc. Then what you have to do is, choose whether to lock in the rate of interest or select a floating one.
A quick tip for you here. If the interest rates are on an upward spree, lock. If they are going down and are expected to go down only, you might want to choose a floating rate of interest.
Now the first and most important thing that you should know is that, Loan disbursement in a construction loan happens in installments only. Yes, you read that right. If you were expecting that you were going to apply for a loan and soon enough you would have the entire amount in your hand, that isn’t the case.
Secondly, Disbursement happens hand in hand with the construction progress. Banks have a pre-determined benchmark for disbursing funds as and when the construction activity advances. The bank or lender is lending money for something that is to be constructed, with the assumption that it will have a certain value when it is finished. If things go wrong – for instance, if the builder does a poor job or if property values fall – then it could turn out that the bank has made a bad investment and that the property isn’t worth as much as the loan.
Thirdly, pre-EMI has to be paid until final disbursal. You will have to keep paying the pre-EMI monthly till the final amount of loan is disbursed. You will have to pay interest for the sum getting disbursed under each installment and this amount will not go into repaying the principal loan amount.
Fourth, tax benefits are limited in a home loan for construction, unlike a normal home loan. Unlike regular home loans where you can avail tax benefits on both interest and principal amount, for a home construction loan you will get tax benefits only for the interest paid if the construction activity is not complete.
Lastly, please note that any interior works are outside the scope of such loan. It is provided only for immovable works conducted for a house. This means interior works like painting, furniture, cupboards, etc will not be included.
Home loan for Home Improvement.
Want to give your house a makeover but don’t know how to finance the expenses? Have a look at the various home loans available for improvement. Here are the details.
Home improvement is meant for renovating a house, and is given to the person in whose name the property is registered. Home improvement could comprise of remodeling, painting, internal and external repairs, and even bigger construction work such as adding a floor.
Maximum tenure is generally 30 years and interest rates are in range of 8.65%- 11.75% per year. It is depending on lender, loan amount and eligibility. Lenders normally fund close to 80% of the work estimate. Which should be related to improvement or extension of the property.
The processing fees for these loans are generally up to 0.5% of the loan amount. You can avail tax exemption for these under section 24(b) of the Income-tax Act. The interest paid on home improvement loan is tax deductible up to the amount of Rs.30, 000 per annum. Click here to read about Home Improvement Loan or Personal Loan
So now that we know about these 2 kinds of loans.
let us have a look at the documents required to acquire a home loan.
Following is a complete and comprehensive list of all the documents required when applying for a home loan in India. You can have a look and thank us later!
• Photo Identity Proof: Any One from the following;
2. Pan Card
3. Voters ID Card
4. Driving License
• Residence Address Proof: Any One from the following;
2. Ration Card
3. Utility Bill
• Residence Ownership Proof: Any One from the following;
1. Property Documents
2. Maintenance Bill
3. Electricity Bill
• Property Documents: Property documents to be submitted based on the purchase of your dream home.
1. Copy of agreement executed / Sales Deed.
2. Share Certificate.
3. Latest Maintenance Bill.
4. List of documents & sanction letter given by Existing Banker (If Applicable).
• Advance Processing Cheque required to process loan documents for sanction.
• Investment Proof (if any): please submit if any investment like, Fixed Deposit, Shares, Fixed Assets, etc.
• 1 passport size color photograph
• IF EXISTING LOANS: If any existing loan, please submit sanction letter, Payment Track Record.
• IF PROFESSIONAL: Please submit your Professional Degree Certificate.
Additional Home Loan Documents Checklist for Salaried persons:
• Income Proof: Latest 2 months’ Salary Slips and Form 16 if salary above 20000 thousands per month.
• Job Continuity Proof: Any One from the following:
1. Current Employment Certificate
2. Current Job Appointment letter (if it is more than 2 years)
3. Experience Certificate (including your previous job certificate or appointment and relieving letter)
• Bank Statement: Latest 6 months statement where your salary is getting credited.
Additional Home Loan Documents Checklist for Self Employed Business Persons:
• Office Address Proof: Any One from the following;
1. Property Documents (if any)
2. Maintenance Bill (if any)
3. Utility Bill
• Office Ownership Proof (if any): Any One from the following;
1. Property Documents
2. Maintenance Bill
3. Electricity Bill
• Business Existence Proof: Any One from the following;
1. 3 years old Saral Copy
2. Shop Establishment Act
3. Any Tax Registration Copy
4. Company Registration license
• Income Proof: Latest 2 years Income Tax Returns including Computation of Income, Profit and Loss Account, Balance Sheet, Audit Report, etc.,
• Bank Statement: Latest 6 months bank statement both current and savings.
Home Loan Documents required by Guarantor:
• Assets and liabilities statements.
• 2 passport size photographs.
• Identity proof.
• Address proof.
• Signature identification from present banker.
Additional Home Loan Documents Checklist for Non Resident Indian (NRI) Persons:
• Passport & visa copies of the NRI Guarantor.
• Current overseas address verification proof of the NRI Guarantor. ( Driving license or bank statement showing overseas address or latest insurance premium receipt or utility bill)
• Current income documents of guarantor.
Property documents required for Home Loan:
Post closure of loan, documents required for handover of original Property documents
• Power Of Attorney format for collection of original Property documents
• In case of death of Loan Account holder:
o Request letter from the Legal Heir/ Claimant/ Nominee(s) for handover of Property documents.
o Letter of relinquishment for relinquishing right (Nominee/ Legal heir) in favour of Legal Heirs/ Nominees/ surviving owners for handover of Property documents.
However, if you are just looking for a place to live, if you don’t have the emergency fund to deal with building setbacks, or if you are nervous about the home building process, then you may be better off choosing to simply purchase a home using a conventional loan. Carefully weighing the risks and benefits is important so you know that the choice you make is the right one for you.Click here to read about Tax benefits under constructions in home loan
Now that you know what all you require, get set go! Get the dream house you’ve always wanted!
Please kindly give your views in comment box.
FOR MORE INFORMATION CALL US:-9529331331