Top Eligibility Factors Everyone Should Know before Applying for Home Construction Loan

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09 JUNE, 2021

You can opt to self-build you house instead of opting for a pre-constructed house if you have access to the right plot and a great location. But constructing a home can require a lot of time and effort. In order to smoothen this process, lenders offer home construction loans. Whether you plan to build a home for yourself, build a property to rent it or sell it for profit purposes, you can choose to avail a home construction loan. Applicants can easily check their home loan eligibility online with the help of an online eligibility calculator in order to apply for the loan. Numerous factors affect the eligibility of a home construction loan.

Some of the important ones are mentioned below:

Age
The age limit to avail a home construction loan is between 18 years and 70 years. However, some banks give loans for construction up to a maximum age of 65 years.

Credit score
A high credit score of 750 and above is essential if you wish to avail a home construction loan at an attractive interest rate. So, you must get your credit report and check your credit score before applying for a home construction loan. In case you have a poor credit score, you should work towards improving it by clearing outstanding dues and decreasing your credit utilization ratio.

Debt-to-Income ratio
The debt-to-income ratio is the percentage of your gross monthly income that is spent towards paying existing debt. A low debt-to-income ratio will make you a low-risk applicant and boost your eligibility for home construction loan.

Employment status
Your current work profile, employment history, and job stability also impact your loan eligibility. If you are employed with the government, government backed organisations like Public Sector Undertakings, an MNC or a reputed firm, your chances of qualifying for a home construction loan would be high. Additionally, lenders also have a minimum income criterion of Rs 20,000 per month in metro cities and Rs 15,000 in other cities to avail a home loan. Ensure that you meet all the eligibility parameters before proceeding with your loan application.

Keep all the necessary documents readily available with you. This will make the process of availing a home construction loan smooth and convenient. Some of the basic documents required are mentioned below:

Documents Required for Home Construction Loan

Duly filled application form
Identity proof: Aadhaar Card/ Passport/ Voter ID Card/ Driving License/ PAN Card
Address proof: Utility bills/ Aadhaar Card/ Passport/ Voter ID Card
Income proof: Income Tax Returns, latest Form 16, salary slips for the previous 3 months. Self-employed applicants must submit profit and loss accounts and balance sheet with schedules duly certified by a chartered accountant for the past 3 years.
Documents related to property: Title deeds of the property, plan sanctioned by local authorities, and estimated cost of construction.

In case of a home construction loan, the loan amount is disbursed in phases. The bank usually keeps an eye on the progress of the project and disburses the amount accordingly. While availing a home construction loan, you do not necessarily require a co-applicant. However, if there are multiple owners of the plot on which the house is constructed, it is mandatory to make all the owners as co-applicants.

Lastly, it is advisable to evaluate the cost of construction carefully and apply for a loan amount accordingly. Do not overborrow as it can increase your repayment burden in the long run. Now, you can build a beautiful home for yourself without any financial worries. End without mentioning the bank

Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.

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