A self-construction home loan is designed for individuals who want to build their own house on a purchased plot of land rather than buying a ready-made property. This type of loan is slightly different from a standard home loan because disbursement and repayment are structured according to the construction stages.
1. Eligibility and Loan Rules
Most banks and financial institutions provide self-construction loans under these guidelines:
- Applicant Requirements: indian citizens with a stable income, usually salaried or self-employed.
- Loan Amount: Typically up to 80–85% of the total construction cost or land + construction cost.
- Tenure: Usually 15–20 years, depending on the borrower’s age and repayment capacity.
- Interest Rates: Slightly higher than regular home loans, ranging from 8% to 12% per annum (varies by bank).
- Collateral: The loan is secured against the land and the house being constructed.
Important Rule: Most banks disburse the loan in stages based on construction progress, not as a lump sum.
2. EMI Timing and Payment Structure
Since the construction is ongoing, the EMI structure is different from a standard home loan:
- During Construction: Borrowers usually pay interest only on the amount disbursed. This is called a construction-linked EMI.
- After Completion: Once construction is complete and the property is ready, EMIs include both principal and interest.
- Stage-wise Disbursement: Banks release funds at key stages — for example:
Foundation laid
Walls completed
Roof/finishing stage
This ensures that borrowers pay interest only on the disbursed portion, reducing the immediate financial burden during construction.
3. Tax Benefits
Borrowers can avail of tax deductions under the Income Tax Act:
- Section 80C: Principal repayment of the loan qualifies for deduction up to ₹1.5 lakh per year.
- Section 24(b): Interest paid on the home loan can be deducted up to ₹2 lakh per year from taxable income.
- Conditions: Tax benefits are available only after the construction is complete and the property is registered in your name.
4. Documents Required
- Proof of identity and residence
- Land ownership documents or sale deed
- Detailed construction plan and cost estimate
- Income proof (salary slips, IT returns)
- Bank statements
5. Advantages of a Self-Construction Loan
- Build your dream home exactly as per your preferences
- Interest-only payments during construction reduce financial pressure
- Stage-wise loan disbursement ensures controlled use of funds
- Tax benefits make it financially attractive
Bottom Line
A self-construction home loan is ideal for those who own land and want a personalized house. By understanding loan rules, EMI timing, and tax benefits, borrowers can plan finances efficiently and complete construction without cash-flow stress.
Disclaimer:
The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of any agency, organization, employer, or company. All information provided is for general informational purposes only. While every effort has been made to ensure accuracy, we make no representations or warranties of any kind, express or implied, about the completeness, reliability, or suitability of the information contained herein. Readers are advised to verify facts and seek professional advice where necessary. Any reliance placed on such information is strictly at the reader’s own risk.
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