Myths About How To Get Home Construction Loan?

Myths About How To Get Home Construction Loan

Home construction loans are one of the most important and common loans that are available by all class people. While taking a home loan, you should decide whether the loan you are taking is correct or your decision is right or not. You should not have any kind of confusion while taking it.

Most of the people usually make mistakes while taking home loans. It is either due to the lack of knowledge or improper information and much more. Hence, due to lack of information various myths and false concepts arise which misleads the borrowers.

We all know that home construction loans are quite different from a regular home loan. Most people think that both are the same thing but this is wrong both are different things and have different criteria. If the borrowers are not getting the proper and right information on this loan, some myths and misconceptions are taking rounds in the market.

Therefore, let’s check some myths about home construction loans that you need to know, else you can easily fall prey to them. Here are some of the popular myths which are spread among the borrowers and the facts of it. Go through reality.

Myths about home construction loan

Myth 1: You do not need to bring in margin money (down payment) for securing a home construction loan

Fact: False, you need to bring in down payment to secure a home construction loan.

As compared to the regular home loan, where the lender demands up to 20% of the property value as down payment, the down payment amount is much higher in home construction loans, which can be 25% and above.

Myth 2: Lender disburses the full home construction loan amount at once

Fact: False, lenders disburse the home construction loan in installments linked to the progress of the construction of house property. Lenders continuously keep an eye on the development of construction, and the next installment is disbursed after they are satisfied with the progress report. 

Slow construction progress directly impacts disbursement, and the lender can even halt the next installment in non-compliance of terms and conditions.

Myth 3: Home construction loan can be used for financing construction of both exterior and interiors of the house property

Fact: Home construction loan only finances the cost of building i.e, exterior the foundation and permanent structure of the house property. 

The cost of internal fittings like tiles, flooring, electricals, plumbing is not covered in the home construction loan.

Myth 4: The EMI payment starts after the full disbursal of loan amount and completion of construction activities

Fact: False, you are required to pay the pre-EMI amount, the interest component on the disbursed loan till-date during the construction period. You can easily find out the pre-EMI amount by using the home loan calculator.

The pre-EMI amount excludes principal repayment, and once the construction is complete, the final home loan EMI payment and actual loan tenure begin.

Myth 5: The interest rates are lower, and the repayment tenure is longer in the home construction loan

Fact: False, the interest rates in home construction loans are higher by 200-300 basis points compared to a conventional home loan as the lender takes the extra risk of financing a house that doesn’t exist.

Also, the repayment tenure is a bit shorter, resulting in a higher home loan EMI amount. Use the home loan calculator to calculate the final EMI amount.

Myth 6: You receive the same tax benefits in home construction loan as a regular home loan

Fact: False, in-home construction loans, the tax benefits are limited and are not available on the principal amount repaid during the construction phase. During this period, you can claim for a tax deduction on interest paid under Section 24 of the Income Tax Act.

Once the lender made the full disbursal and certified the completion of construction, you can claim for total tax deductions under various sections of the Income Tax Act earmarked for a home loan.

Myth 7: If CIBIL Score is Good Borrowers gets Approval of the loan

Fact: False, credit score is the important factor but still if the borrower does not meet other eligibility criteria like age, proper documents, income, property certificate, the stability of the job then the loan must be rejected.

Good CIBIL score never helps you to get the loan if you do not fulfill the other important eligibility criteria of the loan. 

Must read, what is Seafarers Tax Deduction?


These are some common myths that everyone has to avoid while taking home loans. Due to the extensive documentation and follow-up procedures involved, there is much confusion around.

Therefore, it is mandatory to always read and understand the terms and conditions before signing the loan document to avoid any future trouble.

Also, check your home loan EMI amount you have to pay per month or year thus, it doesn’t cause a burden on your pocket.

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