A Simple Guide to Construction Loans


Loans are probably the most flexible financial instruments designed to fulfil the many dreams of Indians. A loan serves many purposes. People use it to buy their dream car, dream home, for expanding or starting a business, or fulfilling any and every aspiration. There is a loan for every dream that you could ever see.

This article discusses one of the most useful and sought-after loans by Indians- the house construction loan.

What is a House Construction Loan?

A house construction loan is a type of home loan that you can use to build a house on a plot of land you own. A construction loan is different from other home loans like home purchase loan or home extension loan.

The Top-7 Benefits of a House Construction Loan

A house construction loan offers several benefits over other loans. The top-7 benefits of a construction loan are as follows:

  1. Interest-Only Mode

Many reputed lenders provide you with the option to pay just the interest when your house is under construction. You need to pay the capital back only when your house construction gets over.

  1. Fast Approval

Many housing finance companies approve house construction loans very fast. You need to submit a few basic documents, and the loan amount will get transferred to your bank account in no time.

  1. Tax Benefits

A house construction loan is a great medium to save taxes. You may apply for tax deductions on the interest under Section 80C and 24 of the Income Tax Act.

  1. Attractive Interest Rates

Home loan interest rates are generally much lower than many other types of loans. Since construction loans are one of the most frequently-applied loans in India, every lender tries to outsmart the other by keeping their interest rates low. The floating rate of interest varies as per the prevailing Retail Prime Lending Rate or RPLR in the money market.

  1. Long Repayment Term and low EMI

Unlike other loans, a house construction loan comes with a long repayment tenure of up to 30 years. A longer repayment tenure means that you have to pay a low amount every month. 

  1. Flexible Repayment Options

You may pay the interest and capital through post-dated cheques or electronic clearance system.  

  1. Keep a Tab on Your Spending

Since the amount you are eligible to get is limited, the chances are high that your spending will be pre-defined and within limits. A construction loan is an excellent tool for budgeting. 

The Eight Documents You Need to Apply for a House Construction Loan

Whether you are a salaried professional or self-employed, keep the following documents ready while applying for a construction loan:

  1. Application form and photograph
    2. Age proof
    3. Identity and Address proof
    4. Degree certificates
    5. Salary slips or Income Statement
    6. 6-months bank statement
    7. Property documents
    8. Processing fee cheque


If you own a plot of land and are planning to construct a house, this is the best time to think about it, as home loan interest rates are hovering near their multi-year lows. As the repayment tenure is longer than other loans, you should be careful while selecting your lender. Choose a lender who caters to different types of loans, has branches all over the country, and offers door-step delivery.