Home construction loans: how banks pay out by stage
Design IRL Editorial · Figures checked 7 November 2026 · For anyone borrowing to build a house on their own plot · How we make our guides
A construction loan does not arrive as one cheque. The bank releases it in parts as your house goes up, and each part needs proof that the work is done.
Plot, composite and construction loans
There are three common shapes. A plot loan pays for land only. A construction loan pays for building on land you already own. A composite loan covers both: the plot first, then the building in stages.
Whichever you take, the building part is paid out in tranches. SBI's own terms say only that a construction loan is disbursed in stages. HDFC says the schedule is set in your loan agreement. So the exact split is whatever your sanction letter says.
Your margin comes first
Banks lend up to a share of the cost, called the loan-to-value (LTV). For construction this is commonly up to 80%. You pay the rest, the margin, from your own money.
In practice you also fund the early work yourself: survey, soil test, design and approvals. HDFC, for example, makes its first release only after a technical appraisal and after your own contribution is fully paid.
Plan your cash
Keep your margin, the pre-construction costs and a 10–15% contingency ready before you break ground. The bank will not cover overruns that are not in the sanctioned estimate.
Documents the bank asks for
- Title documents for the plot: sale deed, encumbrance certificate, khata or mutation, and tax receipts.
- The sanctioned building plan from your local authority.
- An engineer's or architect's cost estimate for the construction.
- Proof that your margin has been paid.
- For each later release: a construction progress report and a site inspection report.
The sanctioned plan and the cost estimate are needed before the first disbursement. Tata Capital, for instance, asks for a progress report and a site inspection report for every subsequent tranche.
A typical tranche pattern
The table below is the pattern NoBroker reports for SBI. We have not been able to confirm it in SBI's own documents, so treat it as an example only and check your sanction letter.
| Stage reached | Share released | Proof usually asked |
|---|---|---|
| Plot (composite loan) | Varies | Title check, margin receipt |
| Foundation and plinth | 15–20% | Architect's stage certificate and photos |
| Ground-floor slab | 20–25% | Engineer's verification |
| First-floor slab | 15–20% | Inspector's structural sheet |
| Brickwork | 10–15% | Builder's completion declaration |
| Plaster and internal work | Up to 10% | MEP status report |
| Flooring and completion | Balance | Finishing report |
| Occupancy certificate | Closing buffer | OC copy |
Inspections and the time lag
Before each release, the bank sends a valuer or engineer to the site. Their visit, report and approval take time. Releases tend to lag the work on site by about one to three weeks.
- Tell the bank as soon as a stage is complete, not when the contractor's bill arrives.
- Keep dated photos of each stage, especially work that gets covered, like footings and slab steel.
- Ask your architect or engineer to sign the stage certificate promptly.
Line up the contractor with the bank
Your contractor wants paying when a stage is done. The bank pays a few weeks later. If the two schedules don't match, you fill the gap from savings or the work stops.
| Contractor milestone | Share of contract (example) |
|---|---|
| Agreement and mobilisation advance | 5% |
| Foundation, plinth beam and backfill | 15% |
| Ground-floor roof slab | 15% |
| First-floor roof slab | 15% |
| Brickwork, all floors | 10% |
| Plaster and concealed MEP | 10% |
| Flooring and tiling | 10% |
| Doors, windows and painting | 10% |
| Fittings, external works, handover | 5% |
| Retention, after the defects period | 5% |
Tie each contractor payment to a verified stage, and give yourself a few weeks of slack after it. Avoid large advances.
Interest while you build
During construction you usually pay interest only on the amount released so far, often called pre-EMI. Full EMIs start later, by agreement. Ask your bank how it works on your loan, and ask a tax adviser how the interest is treated for you.
Rates move with the RBI repo rate. In October 2026, BankBazaar listed salaried borrowers with good credit scores at roughly 7.15–9.0%. Compare two or three lenders, and read the sanction letter line by line before you sign.
Figures are approximate
Tranche shares, rates and documents vary by lender, city and loan size. Treat everything here as a guide and confirm it with your bank.
Find the people
Sources
Most published cost figures come from firms that sell the work. We give ranges and you should get 2–3 quotes.