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How is Home Construction Loan Different from Loan Against Property?

Having your own home is not only a blessing, but it can also protect you from tough times and help you grow. If you are wondering how your home can protect you, then you need to know about loans against property. Yes, banks and financial institutions offer loans against your property for multiple purposes, including business expansion and personal expenses. These loans are completely different from home construction loans. So, let’s try to understand how they are different, and how you can avail the one that you require.

Home Construction Loan

A home construction loan is availed for building your own house or property rather than buying a ready-to-move-in one. This loan is disbursed in stages as the construction of the home progresses. For instance, you will receive a part of the loan amount for building the ground floor, then again the next part of the loan for building the second floor,and so forth.

You need to make a detailed schedule of the construction plan and share it with the lender so that the lender accordingly disburse the amount. The lender will inspect the construction after every stage and accordingly approve the disbursal of the loan amount for the next stage.

Types of Home Construction Loans

Even home construction loan can vary according to the purpose of the loan. Broadly speaking, there are:

  • Self-construction loans: Theseloans for offered to those homeowners who are building their own houses for the first time.
  • Home renovation and extension:Another type of home construction loan is for those who want to renovate or extend their house.

Loan Against Property

Aloan against property (LAP) is a loan that you take against property that is already constructed. It can be a residential property, leased property, or commercial one. Usually, loans against properties are disbursed for financing your business needs such as working capital requirements, expansion of business, and others. LAP is disbursed in one go, unlike a home construction loan which is disbursed in stages.

Eligibility for Home Construction Loans vs. Eligibility for Loans Against Property

You need to be an Indian, residing in the country for availing of either of these two loans. However, your age can be between 28 years to 60 years to apply for a loan against property. Fora home construction loan, the age of the applicant needs to be between 23 years to 60 years.

In the case of a salaried individual, usually there is a minimum income requirement for availing LAP such as Rs. 7000 per month or so, while there is no such minimum salary requirement for availing home construction loans.

For self-employed applicants, the eligibility criteria for both kinds of loans are pretty similar.

Charges for Home Construction Loans vs. Charges for LAP

There are some application charges and loan processing or administrative fees when you apply for a loan against property or home construction loan. Such charges or fees are a little lower for home construction loans than for loan against property.

Loan Amount of Home Construction Loan vs. Loan Against Property

Usually, lenders offer a wide bracket for both types of loans. It is important to know this before you apply for a loan against property or home construction loan. You can expect a home construction loan from Rs. 3 lakhs to Rs. 5 crores, while a loan against property could be between Rs. 5 lakhs to Rs. 10 crores.

Conclusion

Home construction loans differ from loans against property as their core purpose is different. While the former one is sought for building, constructing, renovating or expanding your home, the latter one is taken against the home you have for expansion of your business, child’s education or marriage, or similar purposes.