Difference Between Construction Loan and Home Loan: What You Should Know
July 13, 2025

Planning to take a home loan? Before you apply, know your purpose first. In India, there are different types of home loans available with each offering financing for a particular purpose. For example, a home purchase loan is designed for buying a pre-constructed or read-to-move-in residential house or property, while a home construction loan offers financing to build a new house on a plot/land you own.
In this blog, we have decoded the difference between a home loan and self-construction loan so that you can make an informed decision.
What is a Home Loan?
A home loan or home purchase loan is a secured loan that allows you to purchase a pre-constructed or ready-to-move-in residential house or property. The loan amount varies across banks but is usually up to 85% of the total cost of the property. If your loan application is approved, the loan amount is usually disbursed in full if it’s a pre-constructed or ready-to-move-in property. For under construction properties, the loan is disbursed in instalments basis the stages of the construction. Point to note: in case of partial disbursement, you have to pay pre-EMI interest till the loan is disbursed in full, after which your EMI starts.
Additionally, for under construction properties, the loan is disbursed directly to the builder whereas for resale properties, the loan is disbursed to the seller. The loan tenure usually ranges from 1 year to 20 years.
What is a Construction Loan?
A construction loan, also known as self-construction loan, is a secured loan designed for those who want to build a house/property on a plot or land they own. The loan amount varies across banks but is usually up to 70% of the total construction cost. Like home purchase loans, construction loans come with fixed or floating interest rate.
For construction loans, the loan amount is disbursed in a staggered manner basis of the stages of construction. The tenure is similar to that of home loans.
Construction Loan vs Home Loan: A Quick Comparison
Let's do a quick comparison between construction and home loan for a better understanding.
Construction loan | Home loan | |
Suitability | Suitable for individuals planning to build their own homes on a land they own. | Ideal for individuals looking to purchase an existing property. |
Disbursals | Disbursed in instalments as the construction progresses. | Entire loan amount is disbursed upfront. For under-construction properties, loan is disbursed in instalments. |
Interest rates | Floating and fixed interest rate. | Floating and fixed interest rate. |
Repayment tenures | Up to 20 years. | Floating and fixed interest rate. |
Tax Benefits | Tax benefits on both principal and interest amount | Tax benefits on both principal and interest amount |
Scenarios Where Construction Loans are Preferred
Building a Customised Home
If you have a specific vision for your dream home and want to customise every aspect of it, a construction loan is a suitable option. It allows you to build a house according to your preferences without compromising on design elements.
Renovations or Additions
If you already own a property and want to renovate or add additional structures to it, a construction loan can finance these projects. From expanding your living space to remodelling your kitchen, a construction loan can help you transform your existing property into your dream home.
Example: Mr. Sharma wants to add an extra floor to his existing house to accommodate his growing family. By opting for a construction loan from Ujjivan SFB, he can access funds at each stage of the construction process and fulfill his renovation plans seamlessly.
Scenarios Where Home Loans are Preferred
Ready-to-Move-In Homes
If you are looking for immediate possession of a property without the hassle of construction, a home loan is the ideal choice. Whether it's a brand new apartment or a resale property, a home loan provides the necessary financing for your purchase.
Time Constraints
If you have a limited timeframe to purchase a property, such as when relocating for work or personal reasons, a home loan allows you to expedite the process. With the entire loan amount disbursed upfront, you can quickly finalise the purchase and move into your new home.
Final Thoughts
Understanding the differences between construction loan and home loan is crucial when deciding on property financing options. If you have specific customisation requirements or plan to renovate an existing property, a construction loan can provide the necessary funds at each stage of construction. On the other hand, if you prefer immediate possession of a ready-to-move-in property, a home loan is more suitable.
Buying a house has never been this easy! Avail Ujjivan SFB’s wide range of affordable home loan products and enjoy a hassle-free loan journey. From house purchase loan to plot loans and home improvement loans, we have it all! Alternatively, you can browse through Ujjivan SFB product suite - our wide range of financial products are designed to make your financial life better.
Disclaimer:
The contents herein are only for informational purposes and generic in nature. The content does not amount to an offer, invitation or solicitation of any kind to buy or sell, and are not intended to create any legal rights or obligations. This information is subject to updation, completion, amendment and verification without notice. The contents herein are also subject to other product-specific terms and conditions, as well as any applicable third-party terms and conditions, for which Ujjivan Small Finance Bank assumes no responsibility or liability.
Nothing contained herein is intended to constitute financial, investment, legal, tax, or any other professional advice or opinion. Please obtain professional advice before making investment or any other decisions. Any investment decisions that may be made by the you shall be at your own sole discretion, independent analysis and evaluation of the risks involved. The use of any information set out in this document is entirely at the user’s own risk. Ujjivan Small Finance Bank Limited makes no representation or warranty, express or implied, as to the accuracy and completeness for any information herein. The Bank disclaims any and all liability for any loss or damage (direct, indirect, consequential, or otherwise) incurred by you due to use of or due to investment, product application decisions made by you on the basis of the contents herein. While the information is prepared in good faith from sources deemed reliable (including public sources), the Bank disclaims any liability with respect to accuracy of information or any error or omission or any loss or damage incurred by anyone in reliance on the contents herein, in any manner whatsoever.
To know more about Ujjivan Small Finance Bank Products Visit:"https://www.ujjivansfb.in"
All intellectual property rights, including copyrights, trademarks, and other proprietary rights, pertaining to the content and materials displayed herein, belong
to Ujjivan Small Finance Bank Limited or its licensors. Unauthorised use or misuse of any intellectual property, or other content displayed herein is strictly prohibited and the same is not intended for distribution to, or use by, any person in any jurisdiction where such distribution or use would (by reason of that person’s nationality, residence or otherwise) be contrary to law or registration or would subject Ujjivan Small Finance Bank Limited or its affiliates to any licensing or registration requirements.
FAQs
1. What documents are required for a construction loan application?
To apply for a construction loan, you typically need to provide documents such as the property's legal papers, architectural plans, cost estimates, and your income and identity proofs.
2. Can I avail of a home loan if the property is still under construction?
Yes, banks offer home loans for properties that are under construction. These loans are typically disbursed in tranches based on the construction progress.
3. How do I calculate the eligibility for a construction loan?
Lenders assess your eligibility for a construction loan based on factors such as your income, credit score, existing loans, and the collateral value of the property.
4. Can I avail of tax benefits on a construction loan?
Yes, you can claim tax benefits on the interest paid during the construction phase under Section 24(b) of the Income Tax Act.
5. How is the loan repayment process different for construction loans and home loans?
In case of the repayment of a construction loan property financing options, the EMI starts after the construction is complete, though you may have to pay pre-EMI interest. EMIs for home loans where the loan amount is disbursed in full start immediately after disbursement.
6. Can I avail of a construction loan to purchase an already-built property?
No, construction loans are specifically designed to finance the construction or renovation of a property, not for purchasing an already-built property.
Latest Blogs

Overconfidence Bias and Its Cost in Investing
June 24, 2025
Overconfidence is a well-documented behavioural bias in finance – often described as an “illusion of control” where investors overestimate their ability to predict or influence market outcomes.

What Makes a Savings Account Ideal for First Time Earners?
July 10, 2025
Starting your first job or gig is an exciting milestone. With your first earnings or salary in hand, one of the biggest questions is: "Where should I keep my money?"

How to Avoid Ineligible Deduction Claims While Filing ITR
July 09, 2025
Filing your Income Tax Return (ITR) for the financial year 2024-25 (Assessment Year 2025-26) requires careful attention to detail.

ITR-1 vs ITR-2: Understanding the Difference and Choosing the Right Tax Form
June 24, 2025
Filing your income tax return in India requires using the correct ITR form.

How Jewellers in India Calculate Gold Price
June 26, 2025
Gold jewellery holds a special place in Indian culture, often bought during festivals and family celebrations.
Quick Links
Registered with DICGC

