Securing the right financial support is a critical first step in building your dream home. Many homeowners turn to plot and construction loans to do this. However, obtaining these loans can be complex, and it's important to understand the various factors involved to avoid any surprises down the road.
In this blog post, we’ll share comprehensive insights into the important things to keep in mind when taking a plot and construction loan to help you in this journey.
Eligibility Criteria for Plot + Construction Loan
To qualify for a loan for plot purchase and home construction, borrowers must meet specific eligibility criteria that assess their financial stability, creditworthiness, and property value, such as –
- Basic Requirements:
- Indian citizenship
- Salaried individuals, self-employed professionals, or business owners
- Employment Tenure: Minimum 3 years of work experience for salaried applicants and 5 years of business continuity for self-employed.
- Credit Score: For favourable interest rates, you need a credit score of at least 650. Lower scores can trigger higher interest rates. You can check your credit score easily on PNB Housing’s credit score check calculator.
- Age: Borrowers must be less than 70 years of age by the time of loan maturity.
- Loan Tenure: The loan tenure impacts the total amount eligible for a loan.
- Property Price: The loan amount is based on the property price in accordance with the financial institution’s LTV policies.
Key Features of Plot + Construction Loan
Loan-to-Value (LTV) Ratio
The Loan-to-Value (LTV) ratio is a critical factor in determining how much of the property’s value the lender is willing to finance. For both plot and construction loans, the loan amount typically depends on the property's value and the borrower's eligibility.
- For a plot loan, lenders usually provide up to 80% of the land’s market value.
- For construction loans, the amount varies based on the cost of construction. Lenders may offer up to 90% of the construction cost, with the remaining amount covered by the borrower as a down payment.
Loan Tenure
The loan tenure for both plot and construction loans generally ranges from 5 to 30 years. However, this tenure can be extended depending on the borrower's financial profile and repayment capacity.
Interest Rates
Interest rates for plot and construction loans generally range between 8.5% and 14.5% per annum, depending on the borrower’s credit score, loan amount, and tenure. Plot loans may have slightly lower rates as they are secured against land.
Disbursement Method
The disbursement method differs slightly between plot loans and construction loans.
- In a plot loan, the entire loan amount is typically disbursed as a lump sum after the property is legally registered.
- In a construction loan, however, the disbursement is done in stages based on the progress of the construction.
Tax Benefits
In the case of a plot loan, there are no immediate tax benefits unless the borrower starts construction on the plot. However, once construction begins, the borrower can claim tax deductions under Section 80C for principal repayment and Section 24(b) for interest on the loan.
Similarly, with a construction loan, tax deductions can only be claimed once the construction is completed. These deductions may apply to the principal and interest paid on the loan.
Prepayment and Foreclosure Charges
Prepayment and foreclosure charges may apply to plot and construction loans, particularly fixed-rate loans. If a borrower wishes to pay off the loan earlier than the scheduled term, the lender may charge a fee, especially if the borrower pays off the entire balance before the agreed tenure.
PNB Housing Finance offers flexible prepayment options for floating-rate loans, generally with no penalties for early repayment. Prepayment charges might apply for fixed-rate loans, but PNB Housing Finance may offer reduced charges if the loan is paid off early or refinanced under certain conditions.
Interest Rates and Loan Tenure
Most financial institutions offer competitive interest rates for plot loans tailored to your credit score and loan amount. For instance, PNB Housing Finance offers competitive interest rates starting at 9.50%* for plot loans up to ₹35 lakh. For higher amounts, rates vary based on the applicant's profile. Use PNB Housing's Eligibility Calculator for personalised estimates.
For example, Mr Ravi Kumar, a salaried professional earning ₹50,000 monthly, can avail of a ₹10 lakh loan at 9.75% interest with a 20-year tenure. His EMI would be ₹9,491. Borrowers with a strong credit score (above 800) receive better rates, while lower scores lead to higher rates.
Based on his plot loan value and EMI capacity, Mr. Ravi Kumar could qualify for a loan amount of ₹17.8 lakh for a home construction loan. In this case, his estimated monthly EMI would be ₹15,500 as per PNB Housing's eligibility calculator.
Flexible loan tenure of up to 30 years ensures manageable repayments. Interest rates are floating, subject to market conditions, and may be more competitive since you’re opting for a composite loan.
Documentation Required for Plot + Construction Loans
PNB Housing ensures a seamless loan process with straightforward documentation. Below are the required documents for salaried and self-employed individuals.
| Document Type | For Salaried Employees | For Self-Employed/Professionals |
|---|---|---|
| Application Form | Duly filled form with photograph | Duly filled form with photograph |
| Age Proof | PAN Card, Passport, or any statutory document | PAN Card, Passport, or any statutory document |
| Residence Proof | Passport, Driving License, Ration Card, Election Card, or any statutory document | Passport, Driving License, Ration Card, Election Card, or any statutory document |
| Income Proof | Latest 3 months' salary slips and Form 16 for the last 2 years | Last 3 years Income Tax Returns with Profit & Loss Account and Balance Sheets certified by a Chartered Accountant |
| Bank Statement | Last 6 months of salary account statements | Last 12 months of personal and business account statements |
| Education Proof | Latest degree certificate | Latest degree certificate (for professionals) |
| Business Proof | Not applicable | Certificate of business existence with a business profile |
| Processing Fee | Cheque in favour of the respective financial institution | Cheque in favour of the respective financial institution |
| Property Documents | Photocopy of title documents, approved plan | Photocopy of title documents, approved plan |
Tips for Choosing the Best Loan Provider
Choosing the proper financial institution is crucial for a smooth borrowing experience and long-term financial benefits. Here are five unique tips to help you make an informed decision –
- Inquire Beyond Interest Rate: Avoid looking only for the lowest interest rate. Check for hidden fees, processing charges, and foreclosure penalties to assess the loan's actual cost.
- Assess the Customer Service: Find a lender with a reputation for responsiveness and a transparent process. Fast issue resolution and personalised service can save you time and stress.
- Look for Speed of Loan Disbursement: For timely completion of projects, ensure your lenders have the loan approval and disbursement timelines without bypassing the documentation process.
- Check Digital Accessibility: During your search, always look for providers that offer an easy online access, be it through tracking your application or paying your EMI.
- Consider Flexibility on Repayment: Choose a lender that offers options for repayment and flexible terms to prepay or restructure your loan when needed.
Common Mistakes to Avoid When Applying
Avoiding common mistakes when applying for a loan can save you from future financial burdens. Here are key pitfalls to steer clear of –
- Overlook Credit Score: You should always check your credit score before applying because applying with a low credit score can raise interest rates or lead to loan rejection.
- Ignoring Hidden Fees: Look at overall costs, including processing fees and prepayment penalties, not just interest rates.
- Short Tenure for Low Rates: Smaller EMIs but short tenures can threaten lifestyle.
- Submitting Incomplete Paperwork: Incomplete paperwork will increase rejection threats and LP processing.
Conclusion
Choosing the right plot + construction loan requires careful planning, clearing legal checks, and exhibiting financial prudence. Proper documentation, lender comparison, and a clear understanding of loan terms are key to a smooth experience.
Apply now with PNB Housing for competitive interest rates, flexible repayment options, and quick approvals tailored to your needs.
FAQs
What are the eligibility criteria for a plot and construction loans?
Eligibility depends on profession, credit score, age, loan tenure, and property cost, with specific requirements for salaried and self-employed applicants.
What documents are required for a plot and construction loans?
Documents include an application form, age proof, residence proof, income statements, bank statements, and property title documents, which vary by employment type.
How is the loan amount for plot and construction loans calculated?
The loan amount is based on the plot's market value, the borrower's income and credit score, and the lender’s LTV policies.
Are interest rates for plot and construction loans higher than regular home loans?
Interest rates for composite loans may differ from standard home loans. It's recommended to check the latest rates directly with the respective financial institution to understand the current offerings.
