A process of owning a house is a roller coaster ride both monetarily and emotionally. Everyone strives hard to find a house that fits in their requirements and in their budget as well. There are some people who like the idea of buying a ready home as it saves them from all the hassles involved in the construction process. Whereas there are people who prefer to construct the house as it gives them the freedom to get home as per their exact specifications. Owning a house involves a significant investment, and so it is not possible for everyone to arrange that amount for owning or constructing home. Hence, there are options available to arrange the remaining amount required to buy or build your dream house.
For those who are still contemplating on whether to buy a house or construct, the first step to understand is both the options need different types of loans to support the finance. And before deciding, you should evaluate both the options as it can help you decide better. Though owning a house involves sentiments, the decision should be based on the practicality of which loan between home loan and a construction loan is affordable to you depending on your current income and expenses. Thus, here is a detailed comparison between both the loans for a better understanding of its offerings and drawbacks.
Process of Loan Application – As we talk of the process, it is more eased when it comes to home loans. You can apply for a home loan by submitting basic documents like along with property’s verification papers. Whereas, in case of a construction loan, you need to submit basic document along with property papers, plot’s legal authorization, property tax submission papers, construction map or blueprint and more.
Tenure of Loan – Loan tenure is the most important factor to consider before availing a loan. If you take longer tenure the size of your EMIs to be paid on a monthly basis gets reduced whereas in shorter tenure you will have to pay higher EMIs. Most of the banks offer loans for shorter durations that is 7 to 10 years, the maximum tenure varies from one bank to another.
Rate of Interest – There are various banks and non-financing companies that offer home loans, although there are very limited options when it comes to home construction loans. Therefore, home construction loans involve a higher rate of interest. Again, for home loans, there is a lot of competition in lenders over who is providing attractive interest rates on loans.
Tax Benefits – You can claim the income tax benefits for the principal amount as well as interest amount against the home loan borrowed. Whereas in home construction loan, you need to submit the completion certificate of the house that is approved by a certified authority in order to claim income tax benefits.
Process of Loan Disbursal – When your home loan application is approved you immediately receive the approved loan amount within seven working days in your account or account of the builder or society from which you are buying home. In case of home construction loans, you receive the approved loan amount in five phases depending on the completion of construction. Make a note that the bank can suspend or delay the remaining instalments at any phase if the construction is delayed or halted.
Now you know the benefits and drawbacks of home loan and home construction loan, so you can decide better whether you want to buy a house or construct one