Home Loan Vs Construction Loan – Definition and Online Comparison

Here’s a definition and online comparison between home loans and construction loans:

Definition: Home loans are specifically designed for the purchase of an already constructed property or a residential plot, while construction loans are used to finance the construction of a new home or property.

 

Eligibility: The eligibility criteria for both home loans and construction loans are similar, but construction loans may have stricter requirements, as they are meant for a specific purpose.

 

Loan amount: The loan amount for home loans is generally higher than that of construction loans, as it is based on the cost of the property being purchased or the plot being bought. Construction loans are based on the cost of construction and related expenses.

 

Interest rates: Home loan interest rates are generally lower than those of construction loans, as they are secured loans and considered less risky for the lender. Construction loans typically have higher interest rates, as they involve higher risks for the lender.

 

Disbursement: Home loans are disbursed in full at the time of purchase, while construction loans are disbursed in instalments, based on the progress of construction.

 

Tenure: The tenure for both home loans and construction loans can be up to 30 years, depending on the borrower’s eligibility and the lender’s policies.

 

Processing time: Home loans may have a shorter processing time than construction loans, as they involve less documentation and regulatory procedures.

 

Documentation: The documentation required for construction loans is generally more extensive than that of home loans, as it involves detailed construction plans, cost estimates, and approvals.

 

Prepayment charges: Home loans may have higher prepayment charges than construction loans, as they are long-term loans and involve significant costs for the lender.

Home loans are specifically designed for the purchase of an already constructed property or a residential plot, while construction loans are used to finance the construction of a new home or property. eligibility criteria for both types of loans are similar, but construction loans may have stricter requirements. Documentation required for construction loans is more extensive than that of home loans, and prepayment charges may have higher prepayment charges.

Overall, home loans are ideal for those looking to purchase an already constructed property or a residential plot, while construction loans are a good option for those looking to build their own home. It is important to compare the features and benefits of both options before making a decision.