Generally, everyone knows about Home Loan, but do you know about Construction Loan? How is it different from a home loan and do banks pass it as easily as a home loan?
There are many such questions that often come to the mind of those who take loans to build a house. If we look at the banking rules, there is not much difference between a home loan and a construction loan, but the biggest difference between the two is that a home loan is taken against the constructed house, whereas by taking a construction loan you get the vacant property. Build a house on the land. This is the reason why banks also impose different terms and conditions for both types of loans.
First, let's talk about home loan
If someone wants to take a home loan, then he chooses a ready-made house and applies for a loan from the bank to buy it. In this case, the bank accepts your loan considering that property as a kind of collateral. However, for this, your CIBIL score and income proof should also be better. Generally, a home loan is available up to 90 percent of the market value of the property, but banks also determine it on the basis of your ability to repay EMI.
Construction loan is a slightly different matter
If you have your own land and want to build a house on it, then you apply for a construction loan in the bank. Before applying, you will have to tell the bank how big a house you want to build and how much it will cost. A quotation will have to be made and submitted to the bank. If your income and CIBIL score are good, then banks can give you 100 percent of the cost of building a house as a loan.
Many banks allow loans up to 90 percent of the total market value of the land on which you want to build a house. For this, you will also have to submit solid land documents to the bank. However, both home loans and construction loans are available to you for a longer period. So you may have a long time of 30 years to repay it. Construction loans are a bit risky, hence their interest rates are slightly higher than home loans.
What are the rules for tax exemption?
Be it a home loan or construction loan, you will get equal tax exemption on both. Under this, through Section 80C of Income Tax, you will get a tax exemption of Rs 1.5 lakh annually on loan interest. At the same time, under Section 24 of Income Tax, you will get tax exemption of up to Rs 2 lakh annually on payment of loan principal amount.
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