Home Loan vs Construction Loan: Which One Should You Opt For?

Every person yearns to own a home at some point in life. You will need your own home to support a family or have a robust real estate investment. Banks and other financial institutes offer Home Loans and Home Construction Loans or Construction Loans, as they are popularly known, to fulfil this dream.
Both the loans come in handy when you plan for a residential property. But, there are quite a few differences between Home Loans and Construction Loans that you must know about. 

Let us look at the differences and understand which loan best suits your need. 

What is a Home Loan? 

A Home Loan is an amount borrowed by an individual to buy/construct a house for themselves or their families. This loan is available with a fixed obligation to income ratio. You can get up to 80 percent of the home value using a Home Loan. A Home Loan is also tax-deductible under Section 80C of the Income Tax Act.


What are Home Construction Loans?

This loan is generally opted when you wish to construct a residential house for personal use or investment purposes. You can get a loan of up to 100 per cent of the construction value, with a maximum of 90 per cent of market value using Home Construction Loans. Generally, this loan is a part of a Home Loan.


What are the differences between Home Loans and Construction Loans?

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Points of differenceHome LoansHome Construction Loans
Documentation requiredSome of the required documents for Home Loan for verification are:
  • KYC documents
  • Papers of the property 
  • Income proof
In addition to documents needed for Home Loans, you also need to provide:
  • Approval from the Municipal Corporation 
  • Architect-authorised construction blueprint
Loan tenureThe maximum loan tenure for a Home Loans is 30 years. The maximum loan tenure for Construction Loans is 30 years.
Interest rateHome Loan interest rates are generally lower as compared to the Home Construction Loan.
 
 HDFC Bank offers you competitive interest rates.     
Construction Loan interest rates tend to be higher than Home Loan. This is because they are not widely available or opted for individually.
Disbursal of the loanOnce you get the approval for the loan, the lender transfers the entire amount of the loan to your bank account. In the case of Construction Loans, the lender will transfer the loan amount in instalments.


Nevertheless, before applying for Home Loans, it is important to know the amount of loan you can apply for. HDFC Bank Home Loan Eligibility Calculator can come in handy here.

To use the calculator, follow these easy steps: 

Step 1: Visit HDFC Bank Home Loan Eligibility Calculator page.
Step 2: Enter your Gross Income (monthly) in INR. NRIs should mention their net income.
Step 3: Select the desired loan term tenure you wish to avail the loan. 
*Tip: A longer tenure helps in enhancing the eligibility.
Step 4: Enter the prevailing HDFC Bank Home Loan interest rate*. 
Step 5: In case you have any other financial obligation, enter their EMIs too.

As you follow these steps, your screen will display the loan amount you are eligible for.

With these differences in mind, choose the loan that best suits your requirement.
To apply for a Home Loan at HDFC Bank, click here.

Want to read more about Home Loan versus Business Loan? Click here to know more!


*Terms and conditions apply. Home Loan at the sole discretion of HDFC Bank limited. Loan disbursal is subject to documentation and verification as per Banks requirement.