Home Loan For Renovation: Eligibility, Tax Benefits, Interest Rate

Home Loan For Renovation: Eligibility, Tax Benefits, Interest Rate

Home Loan For Renovation: Eligibility, Tax Benefits, Interest Rate

If you plan to upgrade your house to make it feel larger and more contemporary, you should apply for a “Home Renovation Loan”. You can improve the tiling, flooring, painting, and plastering of your home by paying equated monthly instalment (EMIs).

Banks and financial institutions offer financial assistance to renovate or improve your house, along with options to claim income tax deductions.

MakaaniQ tells you more about 'home renovation loans'.

Estimation of cost by registered architect/engineer

The first thing that you must do while applying for renovation home loan is to get an estimation of the cost by a registered architect or engineer. Lenders assess your home loan application based on estimates of the costs of your home renovation project. Make sure that you get these estimates from registered contractors, so that the lender feels confident that the renovation project will be completed on time.
Be prepared to pool in 10-20 per cent of the loan amount as margin money (i.e. as owner's contribution). The lender will not fund 100 per cent of the estimated cost of the home loan.

Technical verification is mandatory

If you think that once the technical verification of the house is done, the sanctioned renovation home loan amount will be disbursed, think again. Lenders are always suspicious about the level of improvement/renovation done in the case of such home loans.

The lender may sanction the evaluated home loan amount, but will disburse it only after determining the level of renovation/improvement committed by your contractor.

But, how will a lender get to know about the extent of renovation being done? Is he going to visit your house from time to time?

No. This is where technical verification comes into the picture.

The empaneled valuator of the bank will establish the level of improvement and provide a bi/tri-monthly technical report. The loan amount will be disbursed based on the level of renovation established by the authorised technical agency.

What renovation/improvement home loan covers

Let us understand that the purchase of durables for the home renovation or improvement is excluded from the purview of renovation home loans. Elements of renovation, like an extension of a room/balcony, painting, flooring, advanced plumbing/tiling/ flooring, changes in bathroom styles and construction of the modular kitchen are taken into account while extending the renovation home loan. The renovation/ improvement must take place within the built-up area (i.e. area covered by inner and outer walls and additional areas mandated by the authority such as flowerbeds, dry balcony etc.).

The renovation home loan will be rejected if renovation takes place beyond permitted limits.

Eligibility for renovation home loans

The new, as well as the existing home loan applicants, can apply for renovation home loans. The Loan-to-Value ratio (LTV) is up to 80 per cent for renovation home loans too. You may be eligible for a higher LTV if you are an existing customer of the bank, and have the clean track record. You can also use your strong points (like clean track record, hike in pay, additional rental income, improved credit score ranging from 750-800) to get your processing fee (PF) waived off.

An 'approved plan' is mandatory for sanctioning renovation home loan.

The eligibility criteria remain standard for renovation home loans.

Also, the loan amount is disbursed as renovation progresses. You will be expected to contribute funds to the renovation home loan amount, at every level of disbursement.

Eco-home features in renovation home loans 

If you spend more towards additional eco-home features like rainwater harvesting and solar set-ups, they can be included in the Loan-to-Value ratio (LTV). Loan-to-Value is loan amount granted to you over the market value of the property.

Tax deduction on renovation home loans

A loan taken for renovating an existing house after the completion certificate is issued, or after the house has been let out/occupied is not eligible for tax deductions under Section 80C. However, the interest component is eligible for deduction under Section 24(B) under the head, “income from house property”. You are eligible for tax deductions up to Rs. 30,000 per annum on the interest paid on the home loan improvement.

Also read:

How To Claim Tax Deductions On Home Loan

Last Updated: Fri Sep 28 2018

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