If you are taking a loan for construction of house, banks usually make the disbursement in installments only, ie, as the work progresses. The loan amount for construction will be sanctioned as per the estimate provided by you, and keeping the LTV, ie, maximum 85% of the estimated value of construction will be provided as loan. So the bank starts disbursing the loan, only after completion of your own contribution.
For example, if you have taken loan up to 85% of the estimate amount, the bank will disburse the first installment after ensuring that the work for the 15% (own contribution) has been made. Unlike the bank guy told, you need not complete the entire construction from your own fund and get reimbursement form the bank.
You will not get tax benefits for plot loan. Because of this difference in taxation, plot loans or land loans are not offered by banks as home loans. Even if it is approved as home loan, you wont get IT statement for land loans.
If you have availed loan up to 85% of the estimate value, you will get the first disbursement soon after completion of the foundation. You can claim tax benefits for the disbursed amount too.