While almost everyone has the dream of having their own home, not everyone can fulfill it. It is primarily due to the lack of sufficient funds. But with the easy availability and convenience, home loans are emerging as a popular means to buy a home.

When you decide to secure a loan, you will come across terms like home loan and house construction loan. Are these loans different? Which one is best for you? Read ahead to find out.

Key Differences Between Home Loan And Home Construction Loan

Home loans and home construction loans are quite different, owing to a few factors. Here are four of them:

  1.   Documents Required:

The documents required for each type of loan can vary significantly. When applying for a home loan, you will only need to submit essential documents like income proof, salary slip, bank statements, along with papers of the property to verify.

On the contrary, you will need to submit a few more documents besides the ones for a home loan in the case of a house renovation loan. It will include the plot’s registration papers from the authorities, no-encumbrance certificate of the particular property, detailed construction plans, and estimated cost authorized by a civil engineer

  1.   Rate Of Interest:

Another striking difference between the two loans is the rate of interest charged by the lender. The rate has become quite competitive due to the increasing number of institutions offering it. Depending on your credit score, the lender will charge you an interest rate which will be relatively less. However, the rate of interest will be higher for a home construction loan since they’re not as easily available.

  1.   Loan Tenure:

The loan tenure is the number of years you get to repay the principal loan amount as well as the interest charges. The longer the tenure is, the lower the EMI will be. In the case of home loan, the maximum repayment period can be 30 years; however, the same for a house construction loan ranges from 10 to 15 years. Some lenders might even keep the period can be much less than this.

  1.   Disbursement Of Loan:

Upon the approval of the loan application, the bank gives you the amount, which is known as a disbursement. If you’re going for a home loan, the entire amount will be disbursed at once, either into your bank account or the builder’s account. 

This is not the case for a home construction loan. Here, you will get the loan amount in installments, and it can take around 3-5 payments to complete the entire amount. The payments can coincide with the phases of construction. Keep in mind that the lender might hold or even cancel the payment in case the construction of the property doesn’t proceed as per the plan.

Final Thoughts

Financing can be a major concern for every aspiring homeowner. But choosing the right home loan or house renovation loan can help you own a home even if you don’t have the capacity to pay for it at once out of your own pocket. Now that you know the difference, you can choose the best loan for yourself from PNB Housing! 

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