Do you dream of building a house with a private gym or a swimming pool? Do you want to own a vacation home in the mountains or facing a beach? Well, building a home gives you the freedom to customise it according to your wants and style. But it can also cost a fortune.
If you’re thinking of building a home to suit your aesthetics, a composite loan is the best tool to finance your dreams. A composite loan is a credit taken for purchasing land and building a house on it. A composite loan scheme is ideal when you want to avail of credit for acquiring land as well as constructing the house.
But before you proceed with your application, here are 10 things you must know about the composite home loan-
1. A composite loan is not the same as a land loan
Lenders extend a land loan to only purchase a plot or land. However, a composite loan scheme includes both land and construction cost. While applying for a composite housing loan, you have to share your construction plans with the lender. Therefore, if you plan to start the construction at a later stage, apply for a land loan.
2. Composite loan interest rates are higher than regular home loans
Home loans attract the cheapest interest rates among all loan products. Lenders extend home loans to buy a ready-to-move or an under-construction house. However, composite loan interest rates are slightly higher because it serves two purposes- buying land and constructing a house.
3. Constructing a house is mandatory
With a composite home loan, it is mandatory to construct a house on the land you purchased. Therefore, if you do not plan to start construction within the next year or two, availing of a land loan will be a better choice.
4. You must start constructing the house soon
Most financial institutions require you to start constructing the house within 1-2 years under their composite loan scheme. If you fail to do this, the lender can increase your composite loan interest rates or ask you to make the repayment and close it.
5. Lenders disburse the loan in tranches
While availing of a composite housing loan, you will not receive the entire loan amount in a lump sum. The lender will disburse the loan in three stages-
Stage 1- When you purchase the land
Stage 2- When you begin constructing the house
Stage 3- Released in instalments as construction progresses
You must submit your construction plans along with a breakup of costs to the lender. This will help to determine your composite loan interest rates and the amount of disbursement.
6. You will receive the composite loan amount in your personal bank account
Financial institutions will disburse the loan amount in instalments directly to your bank account. Since you have already shared the construction plans with the lender, make sure you use your composite housing loan only to buy land and construct the house.
7. You can take composite loan tax benefits
If you complete the construction of your house within 3 years, you can enjoy composite loan tax benefits under the Income Tax Act. After you complete the construction of your house, you can start taking composite loan tax benefits for the principal amount and interest paid every year.
8. A completion certificate is required to enjoy composite home loan tax benefits
After completing the construction of your house, you must submit the completion certificate to your lender and start making your EMI payments. You can start taking composite home loan tax benefits from the year of completion of construction.
9. NRIs are also eligible for a composite loan
NRIs are equally eligible to apply for a loan as other Indian citizens. The loan application and disbursement process are the same for all.
10. Lenders approve up to 80% of your land and construction cost
When you avail of a composite loan scheme, you can fund up to 80% of the total cost. Lenders will evaluate the estimated land and construction cost based on the documents you submit and extend credit for up to 80% of this value.
Construct your dream home with Tata Capital
From choosing the right architect to comparing different schemes for a composite home loan, building a house has a whole set of challenges. But in the end, it is all worth it when your house looks exactly the way you dreamed.
But if you’ve found your dream house that is ready to move or under construction, you can easily finance it with Tata Capital’s affordable home loan. Besides a simple loan process and affordable interest rates, you can also enjoy other benefits like flexible loan tenures, easy repayment plans, and much more. So, whether you’re buying a new home or renovating an existing place, we have got you covered for all.