Financing is the first concern of all kind of home buying. When you apply for a loan for an under construction property, it is called a ‘home construction loan‘. Whereas when a loan for buying a fully constructed house is availed, it is called a ‘home loan‘. Blog: https://financebuddha.com/blog/home-loan-vs-home-construction-loan

1. HOME LOAN VS HOME
CONSTRUCTION LOAN

2. It is your choice whether you would like to invest your time
or energy to craft the home of your dreams or would you like
to avoid the hassles of home construction; either way the
financing options are never limited. Bank loans are easily
available for both kinds of home purchasing.

3. Financing is the first concern of all kind of home buying.
When you apply for a loan for an under construction
property, it is called a ‘home construction loan‘. Whereas
when a loan for buying a fully constructed house is availed, it
is called a ‘home loan‘.

4. A home loan and a home construction loan appear similar
and many of the borrowers are found to be getting confused
with these two credit products. Here are the vital differences
between a home loan and a home construction loan.

5. Construction Loans Are Shorter In Tenure
 A home loan is a kind of credit which can run for as long as 30
years.
 The tenure of a construction loan is always shorter which
result in a higher amount of EMI.
 The risk factor is always high for the lender in a construction
loan than a general home loan.

6. Home Construction Loans Are Disbursed In Phrase
 The loan amount is disbursed as progress is made on the
project.
 The lender keeps a sharp eye on the progress of the project
and a phase of the loan will be disbursed only after the
previous phase is successfully completed within the given
time.

7. The Tax Exemption Conditions Are Different
 The tax benefit for under construction home loan cannot be
claimed if the construction is not completed within 5 years or
the house is sold within 5 years.
 Moreover, the tax return should be claimed in five equal parts.

8. Larger Down Payment
 A general home loan down payment is 10% to 20% of the
property value.
 Rest of the amount can be availed through home loans.
 But to qualify for a home construction loan, one must pay
more than 25% of the property value as down payment.

9. The Rates
 The rate of interest on home loans is generally in the range
8.55- 12 per cent.
 But a Home construction loan is always costlier than a
general home loan.
 The rates of a home construction loan ranges somewhere
between 11-14 per cent.

10. Zero Cost In Prepayment
 Most of the lenders of home construction loans offers zero
pre-payment charges even if it is an early period of the
tenure.
 But if you want to pre-pay your home loan in an early
period i.e. before completion of first 18 months, you will
have to pay a pre-payment penalty.

11. Construction loans are a must for the builders who work
with huge projects. But individuals who want to build their
homes according to their own way can also avail the same.
But as mentioned above, availing a home construction loan is
a bit tricky as you will need to produce a full proof plan for
your home