Home renovation can be a big stress and requires getting a personal loan for repairing or renovating your house. But banks are desperately looking for borrowers, who have a decent credit history and have a capacity to pay off the loan properly without risk.
Home Improvement Loans
Personal Loan can help you begin the home renovation, but the other possible option is to get a home improvement loan from the bank if you only want the loan to renovate the house. The loan on home improvement can get you tax deduction benefits while a personal loan will not provide you with any tax benefits. Note that a home improvement includes reconstruction of an existing old property or newly purchased property or apartment.
Home Renovation Loans
An estimate of the cost of the renovation is required at the time of applying for the loan and needs to be submitted with all your documents. A home renovation loan will help you extend your property, such as getting an extra room or making an extra floor, balcony, plumbing or exterior elevations work, all are covered under the home renovation loan.
Notably, making your kitchen modular and getting a new wardrobe is not covered under the home improvement loan category. For such furniture purchase and work, a personal loan is better, but you will not be eligible to apply for any tax exemption.
Mostly people avail a personal loan in case of renovation because of the scope of work involved. But in some cases, it is possible that they are not aware of a home improvement loan.
Choosing According to Tax Benefits
If you do not want to avail a home improvement Loan for a small amount, then you can avail a personal loan against gold or fixed deposit or even property, to benefit from the lower interest rate. But home improvement loan will help you get a tax deduction on the loan repayment.
As per income tax act, section 24, the interest paid on the home improvement loan can be eligible for tax deduction up to INR 30,000 p.a. but the owner and the co-owner only can avail the benefit.
Documentation required for a Loan on Home improvement are as follows:
- Proof of identity and resident
- Proof of Income
- Employment contract/Appointment letter
- Bank statement
- Passport size Photograph
- Cost of Reconstruction of the house
- Own contribution for home construction
Most important Documents in terms of obtaining Home re-construction Loan are:
- Title deed of the plot
- Copy of the plans, approved by the local Authorities
- Construction estimate by an architect/Civil engineer
So the better option always is to go for a home improvement plan rather than personal loans, as you will find this much better in terms of tax deduction and other benefits offered by the banks. But specifically in terms of small amounts required to improve a house, it is advisable to not get an unsecured personal loan than a loan against some fixed deposit or Gold to avail very less rate of interest.
Home renovations can be a costly yet necessary expense to improve the experience of living in your own home. And of course, we all wish to live in a house that best reflects the things that comfort and delight us. But there is necessarily a cost associated with all of this. It, therefore, is important to balance between the things you want and its long-term impact on your finances. Accordingly, you can go for a personal loan that best serves your interests.