Home Construction Loans: Everything You Need To Know About

Everything You Need To Know About Home Construction Loans

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Home Construction Loan

Are you planning to build your own home instead of buying a new house? The experience will surely be more wonderful and fun. However, this would require you to apply for a home construction loan which comes with its own set of procedures.

Here’s a detailed guide that explains what a home construction loan is.  It also explains the types of home construction loans, the process of getting one, and the advantages of taking a home construction loan.

What is a Home Construction Loan?

A Home Construction Loan is a type of Home Loan where you can get a loan for building your own home instead of purchasing a flat. As the work progresses, the lender pays out the money in stages. Therefore, if you wish to apply for a home construction loan, you have to provide the lender with a detailed construction timetable, construction plan & a realistic budget for construction.

After a construction loan is approved, your loan amount is disbursed in stages as per the demand of each construction stage. The lender would inspect the site during the construction work or might ask a third-party technical team to visit and check the same.

What are the types of Home Construction Loans?

There are 3 types from which a borrower can choose. Below are the types –

  • Self-Construction Loan
    If you have purchased a plot or you already have a plot in your name, and you need funds to construct a home then you can opt for a self-construction loan.
  • Plot + construction loan (P+C loan)
    If you don’t have a plot in your name and you require funds to purchase the plot as well as to construct a home on it, then a Plot + Construction loan would be the best-suited product for you. Please note that if you need funds only to purchase a plot and not for building a home, then you would have to apply for a loan against property / personal loan as it would not be considered as a home construction loan.
  • Home Extension / Renovation Loan
    You can avail of a home extension loan if you need funds to build an extra floor or add a new room to your existing home. Similarly, a home renovation loan is helpful if you are looking to carry out major repair works in your home, repaint your home, or simply give your house a fresh look.

How to get a home construction loan?

Here are 5 tips that will help you get your loans approved faster:

  • Higher the credit score, the higher the chances of getting your loan approved. Your credit score reflects your creditworthiness. It has a complete record of all the loans taken you have taken or applied for to date, past repayment track record, past payment defaults (if any). Hence, ensure that you maintain a clean repayment record as each default has a negative effect on your credit score.
  • Apply for a construction loan according to your eligibility. The lender will determine your loan eligibility based on your income and repayment capacity. Ideally, your EMI amount should not exceed 50% of your monthly income. Calculate your home loan eligibility and EMI before you apply for a home loan.
  • Keep your property documents and construction budget handy. The lender needs a detailed understanding of the property. The details like the size of the house, the resources to be utilized in the construction, and the name and details of the contractor who would be working on the project.  So, keep your property documents ready.
  • Collaborate with reputed contractors for the construction of your house. This will build more confidence with the lender and will act as a plus point in your favor when your application is processed.
  • Keep some room for extra costs. There can be some unforeseen costs in your journey to build your own home. For example, the cost of some raw materials like steel or cement or sand could go up during the construction period. For this reason, you need to assure the bank that you have enough savings to manage the same.

Why go for a Home Construction Loan?

  • Freedom to build your house just as you dreamt it.
    Unlike taking a loan for purchasing a flat, a construction loan gives you complete freedom to build your home according to your preferences like construction material, structure, color, and design of the house, etc.
  • You don’t need to pay interest on the entire amount from day 1
    A home construction loan is disbursed as per the construction stage. Thus, you will have to pay interest only on the amount that has been disbursed to you.
  • You are free to rebuild, renovate, or extend your house in the future.
    If you feel that there is a need to renovate your house or add a new floor or a room, you can easily take a home renovation loan and make changes in your house according to your comfort level.


  • A home construction loan can help you build, renovate, or extend your existing home.
  • Maintain a good credit score, collaborate with reputed contractors, and be organized with your property documents and construction plan to increase your chances to get your home construction loan approved faster.
  • Also, a better option if you want to build your own home as per your preferences.

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Your home loan will be processed in 2 steps:

  1. You receive the approval of your home loan.
  2. You sign the loan agreement papers and complete other necessary documentation. The loan amount is thereafter paid directly to the builder by Home First Finance Company.

Loan decisions are made in less than a week. You will receive an SMS on your registered mobile number as soon as we make a decision.

HomeFirst does not charge any prepayment fees. This applies to both partial and full repayments. In fact, we have a special Auto-Prepay feature to facilitate this process for you.

HomeFirst offers loan tenures between 1 year to 25 years. If you opt for a longer tenure, you can get the advantage of a lower EMI each month.

HomeFirst can provide finance up to 90% of the property value. The balance has to be arranged by you from other sources. Please note: 90% financing is only available for loans amounting to less than Rs. 30 lakhs.

All co-owners of the property have to be co-applicants to the loan. A person who is not a co-owner can also become a co-applicant to the loan.

During the construction phase, HomeFirst will disburse funds to the builder on your behalf. These will be based on payment requests made by the builder as per the construction schedule.

HomeFirst will charge interest only on the amount disbursed as loan during the construction phase. In this period, interest is charged only on the disbursed loan amount. For example, if you have a sanctioned loan of Rs 10 lakhs, but the property is under construction and we have disbursed only Rs 4 lakhs, you will be charged interest only on 4 lakhs. These interest payments are referred to as pre-EMI interest payments.

EMI payments will start only after completion of the project and registration of the property.

All cheques to HomeFirst should be written out in favor of ‘Home First Finance Company India Limited’.

In the event of an unfortunate incident, home loan insurance will help you or your family pay off the home loan. This ensures that the burden does not suddenly fall upon family members at a bad time.

Send us your resume on careers@homefirstindia.com with the position you are applying for in the subject line.