With property prices rising and demand for new housing still strong, many buyers are turning to under-construction homes. But taking out a loan on one isn't simple. Here’s what you should know before you sign the dotted line
More homebuyers are leaning into the idea of purchasing properties still under construction, hoping to get in early, save some money, and watch their future homes take shape from the ground up. But the process of securing a loan for such properties isn’t straightforward and for many, that complexity arrives only after the paperwork has been signed.
When you apply for a loan on an under-construction home, the money doesn’t come all at once. Lenders release funds in phases, linked directly to the construction progress. Foundation done? That’s one tranche. Roof poured? Another. This method, known in the industry as stage-wise disbursement, is standard practice but not always well understood by first-time buyers.
Most borrowers end up paying interest on only the disbursed amount during the construction period. These are called pre-EMIs smaller payments that cover just the interest. Full EMI payments usually begin only once the final disbursement is made and construction is nearing completion.
One of the primary attractions? Cost. Properties under construction are generally priced lower than ready-to-move-in homes. The flip side is the wait and the uncertainty. Delays aren’t rare. If the builder misses deadlines, you might be stuck paying rent and pre-EMIs simultaneously.
Another financial layer that often surprises borrowers: GST. While there’s no GST on completed properties, under-construction units attract a tax of 5 per cent for homes without input tax credit. That cost typically gets passed down to the buyer.
The documentation required for such loans is extensive and banks aren’t flexible about it. Along with the usual KYC documents, lenders will ask for a No Objection Certificate (NOC) from the builder, proof of the latest construction progress, and a stamped, registered builder agreement. Income proof, bank statements, and credit history remain crucial.
Salaried individuals must be between 21–60 years of age, with at least 3 years of work history.
Self-employed applicants should be 23–70, with a minimum of 4 years in their business.
Credit score matters across the board. Any missed payments or defaults even on small loans can result in rejection or lower approved amounts.
Under Section 24 of the Income Tax Act, you can claim deductions on the interest paid during the construction phase. But here’s the catch: these benefits only kick in after the construction is complete. And the total amount can be spread across five years in equal parts.
So, for example, if you pay Rs 1 lakh in pre-construction interest, you can claim Rs 20,000 per year starting from the year you take possession.
Section 80EEA and 80C provide additional deductions, including stamp duty, registration charges, and interest for first-time homebuyers but only under specific conditions.
Banks offering loans for under-construction properties
Most major banks public and private offer such loans. Among the leading names:
SBI
ICICI Bank
HDFC
Axis Bank
Bank of Baroda
Punjab National Bank
Union Bank of India
Interest rates vary depending on market conditions, borrower profiles, and the lender’s internal credit risk calculations.
Taking a loan on an under-construction property might save money upfront, but it comes with its own set of risks, timelines, and tax caveats. It’s not just about affordability, it's about patience, planning, and being prepared for the unexpected.
Most major banks public and private offer such loans. Among the leading names:
SBI
ICICI Bank
HDFC
Axis Bank
Bank of Baroda
Punjab National Bank
Union Bank of India
Interest rates vary depending on market conditions, borrower profiles, and the lender’s internal credit risk calculations.
Taking a loan on an under-construction property might save money upfront, but it comes with its own set of risks, timelines, and tax caveats. It’s not just about affordability, it's about patience, planning, and being prepared for the unexpected.
Before signing any agreement, buyers should ask direct questions: What happens if construction is delayed? Will EMI terms shift? Is there a clause for early repayment?
Buying early into a project might give you a better price. But the details buried in the loan agreement, the timing of disbursals, the tax consequences, the construction risks are what will determine whether you come out ahead, or end up regretting it.