Explained: Home Loan On Under-Construction Property

You can build your dream home exactly how you want with the help of home loans for under-construction properties provided by bank institutions and other financial firms. It is now simpler and more practical than ever to buy a house because of the low-interest rates and longer repayment terms. Check out the article to learn how home loans on Under-construction property work and their benefits.

When Does Home Loan EMI Start For an Under-Construction Property?

When you are buying a first-time home there are many things required to check before finalizing the property purchase.

A home loan on under-construction property can help you with the dream of owning a house. 

The loan amount is disbursed in stages for under-construction proper through a bank institution. 

• Only the interest portion of the loan will need to be repaid while your property is being built. 
• You will begin making EMI payments as soon as you take possession of the house.
• If you select the “EMI under construction” option, the house loan EMI begins while the property is still being constructed. 
• The EMIs are not charged on the total loan amount, but rather in instalments. The price and disbursement rise with each Pre-EMI.

Also Read, 10 Best Banks For Home Loans In India 2024

How Do Home Loan Amounts Disburse For Under-Construction Property

A home loan for a property that is still under construction is disbursed in a different way than a typical home loan. 

A home loan on under-construction property is generally disbursed in instalments. According to the builder’s requirements, these loan amounts have been granted.

Some banking organisations only levy the EMI on the pre-EMI provided to the builder up until possession. 

Other banks, on the contrary, require EMI payments for the entire loan, even if you have only borrowed a portion of it.

Also, Read How To Apply For A Home Loan 2024

What are the Benefits of a Home Loan on Under-Construction Property

Opting for a home loan on under-construction property can come with several benefits.

Favourable Interest Rates: If you have an excellent credit score, you may be able to receive a house loan at attractive interest rates that are even cheaper.

Reduced EMIs: Under-construction housing loans are occasionally disbursed in instalments by the demands of the phase of development, with interest levied only on the money that is disbursed. This results in lower EMIs.

Interest Payment: Prior Period Interest, or PPI, is the only part of your home loan that must be repaid up until the time you take ownership of your home.

Tenure Flexibility: Depending on the borrower’s age when the loan was obtained and home loan tenure varies for different banks, payback terms may be as long as 30 years.

Points to Keep In Mind When Looking for a Home Loan On Under-Construction Property

To fully enjoy the benefits of your home purchase, you must be aware of a few pointers. 

Here are some points to keep in mind when applying for a house loan on an under-construction property.

Choose a Lender Wisely

Finalizing the right loan lender for a home loan on under-construction property is a tough process as there are many factors to consider.

In addition to providing you with the money you need to purchase the property, the best housing loan provider will also assist you in evaluating it. 

In reality, since lenders have experts who are skilled in this field of business, their feedback can be really beneficial.

You can learn more about the capabilities of the developer and confirm the reliability of their company by using a bank with a housing search service. 

Negotiate The Price While Purchasing

To enhance their earnings, builders could charge excessive property costs. 

Even though the costs appear to be lower than those in the same area, you should not be afraid to bargain. 

Lowering the cost provides an added advantage. By lowering the total price, you essentially lower the cost of the property overall by paying less interest on the mortgage. 

You can make repayments more promptly and easily because of the reduced amount.

Income Tax Benefits

As Per the 80 C Section of the Indian Income Tax Act, a house loan for a property that is still under construction may qualify for tax deductions of up to INR 2 lakhs for interest paid & INR 1.5 lakh for principal paid. 

However, after the construction is finished, you can profit from tax breaks. Five instalments of the loan interest during construction are deductible.

Also, Read Income Tax Rebate On Home Loan 2024

Tips for Buying a Home

If you are considering buying a new home here are a few tips you should consider.

Evaluate Your Finances Wisely

House purchase is a long process which requires a lot of research and planning.

The first step is to evaluate your finances for a property purchase.

Consider the following points,

• Your Income Sources
• Your Debts and Liabilities
• Existing financial commitments
• Future commitments
• Future Income Sources
• Emergency Funds
• Investments

Choose between Ready-To-Move or Under-Construction Property 

Once you set up your finances to purchase the property next step is to figure out which property you are suitable for you.

Ready-to-move property and under-construction property both have pros and cons.

Choose according to your requirements and your financial condition. 

Also, check out How To Setup Right Budget For Buying A Ready-To-Move Property in 2024

Find The Right Home Loan Plan

Selecting the perfect financial institution for a home loan on an under-construction property requires some research. Investigate several home loans, including banks, and financial institutions. 

Making the best choice for you might be aided by being aware of all your possibilities.

Find a bank institution that is straightforward to work with, knowledgeable about the neighbourhood you want to purchase in, responsive to all of your inquiries, and knowledgeable about the entire home-buying process especially if you’re a first-time buyer.

Use the following pointers to find the right home loan plans.

• Choose the home loan tenure
• Select the suitable Interest Rate Type
• Know & Compare HomeLoan Lenders

Also, Read Home Loan From NBFC Vs Banks Comparison

Check The Documentation 

Due to the Real Estate RERA Act adoption, buyers are hesitant to invest their hard-earned money in projects that are still in the planning stages.

Before finalizing the project you must check all the necessary documents and licenses for the project.

The following document buyer must check while investing in an under-construction property.

• Title deed
• Purchase Agreement
• Approved layout plan of Project
• Occupancy Certificate
• Commencement certificate

Also, check out Flexi Payment Plan: What Can Be The Best Payment Option For Buying a Property?

What Is The Process of Buying a Home?

When a person decides to purchase a house it involves a lot of research, planning and visiting different projects. 

Here we have summed up the process of buying a home for you.

Finalize the Budget

Buying a house at the desired location which will fit exact requirements can be a challenging task but before that, you need to finalize a budget for your property purchase.

• First, understand where you stand on the financial aspect. 
• Check your current financial sources and future sources.
• Understand your current and future financial commitments.
• Check your debts and liabilities.

After evaluating these factors finalize how much you can spend on property purchase and finalize your ideal budget.

Locate Area and Project in the Requirement

Once you finalize your budget for buying a home next step is to locate the ideal area for you and your requirements.

• Research the area which is ideal for you and the people whom with you live. 
• Check the connectivity options and transportation while selecting a locality for the project. 
• Also, remember prices can vary for different localities. 
• Understand your requirements such as which kind of home you are looking for a flat, duplex, villa or bungalow.
• This depends on how many people are going to live in the house and on your finances.

Check EMI and Home Loan Eligibility

If you are considering taking a home loan on under-construction property you are required to check the following pointers.

• Choose the home loan tenure
• Select the suitable Interest rate type
• Know & Compare HomeLoan Lenders

This will guide you to a suitable home loan for your property purchase.

Also, you can calculate your EMI and Home Loan Eligibility here.

Also, read Home Loan Processing Fee 2024 And Other Charges For A Home Loan

Prepare for Downpayment and Additional Costs 

Even if you are eligible to get a loan from bank institutions you still require to arrange a downpayment amount for the property purchase.

No bank provides 100% of property cost to you so you have to prepare 10-20% funds of your property purchase budget for the initial stage.

Also, there are a few additional charges which come with buying a house apart from the actual cost of the property.

• Home Discovery Cost
• Brokerage cost
• Stamp Duty and Registration
• GST Cost
• Floor Rise Charges and PLC
• HomeLoan Processing Fees
• Maintenance Deposit Cost
• Interior Modification Cost
• Documentation Cost

Also, check out How To Setup Right Budget For Buying An Under-Construction Property

 FAQs