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Understanding Composite Loans for Comprehensive Financing

Blox Social
Posted on
Oct 21, 2023

Composite loans are loans crafted by banks and financial institutions for plot purchase and dwelling unit construction. They are different from regular land purchases and home loans. This convergence of both purposes in a loan has been a hot selection among loan takers. However, it has pros and cons which must be carefully weighed before availing. Continue reading ahead to understand composite loans better.

Composite Loans are not your regular housing loans

Yes, composite loans differ from conventional home construction or plot/ land purchase loans. Composite loans are housing loans given by banking institutions for the emphatic purpose of buying land or a plot and constructing a home within a stipulated period.

Construction is compulsory if you have taken a composite loan. 

Building on the piece of land or plot for which the composite loan was taken is compulsory. This is an uncompromisable condition given by banking institutions in all composite loans.

Comparing Composite Loan across various providers 

HDFC Composite Loan 

  • Eligibility

18-65 years of age, individuals or salaried employees with Indian citizenship 

  • Rate of Interest 

8.60% and above 

  • Tenure 

15 years 

  • Loan Amount 
  1. ₹30 lakh and below: 80% of the property value
  2. ₹31 lakh- ₹75 lakh: 80% of the property value 
  3. Above ₹75 lakh: 75% of the property cost 
  • Balance transfer from other banks is permissible  

Punjab National Bank 

  • Eligibility

Individuals or co-borrowers with an assured regular income namely businesspersons, self-employed people, salaried employees, professionals, farmers and the like. Age of the loan availer must not be more than 70 years at the time of loan maturity.

  • Rate of Interest 

10.05% and above 

  • Tenure 

Up to 30 years 

  • Loan Amount 
  1. ₹20 lakh and below: 90% of the property value
  2. ₹20 lakh- ₹75 lakh: 80% of the property value 
  3. Above ₹75 lakh: 75% of the property value

State Bank of India Realty Home Loan 

  • Eligibility

18-65 years of age, individuals or salaried employees with Indian citizenship 

  • Rate of Interest 

8.70% and above 

  • Tenure 

Up to 10 years 

  • Loan Amount 

Maximum amount of loan can range up to ₹15 crores 

  • Construction of the dwelling unit must take place within 5 years from the date of sanction of the loan 
  • Concession on rate of interest for women buyers 
  • No pre-payment penalty
  • Customer can avail another home loan for construction of dwelling unit on the plot that was financed under SBI Realty 

CIBIL Score and Documents Required for Availing Composite Loans

As a general trend across preponderant loan providers, certain documents that are asked for include identity proof, which can be Aadhar, driver's License, Passport, PAN Card or Voter’s ID; proof of address that is driver's license, domicile, electricity bills, water bills, passport; income proof which would call for a current bank account statement for a given financial year and duly signed and attested salary slips for salaried employees.  

Lenders usually consider 650 as the minimum CIBIL score for a home loan. However, a Credit score of 700 or above is ideal and recommended.

Tax Benefits on a Composite Loan 

Loan repayment tax benefits are covered under the Indian Income Tax of 1969. It is imperative to pay all EMIs or pre-EMIs as specified by your loan provider to be eligible for any tax benefits. These tax benefits can be availed annually on the repayment of the interest and principal amounts. This amount can range up to ₹ 2 lakhs for the former and ₹ 1.5 lakhs for the latter.

NRIs can avail composite loans in India

There are specific composite loans open to NRIs and also some housing loans which are crafted solely for NRIs. They can be availed for constructing a home and plot purchase in India. The application process for the same is the same as for resident Indians. However, there are some differences, such as the age bracket for application is usually 23 to 60 years of age, having a resident Indian co-applicant, and having an NRE or NRO account in an Indian bank if you do not have it already. Tax benefits can also be availed per sections from the Indian Income Tax Act of 1969.

Final Thoughts 

Since composite loans emphatically mention a timeline within which the construction of the house should start on the plot, they are a good idea only for people who are certain they will be able to do the same. If you are confident about the plot purchase but not about the timeline of beginning the home construction, then the idea of a composite loan must be reconsidered. Else, go for it without a worry!

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