Home Loan On Under-Construction Properties

By 2029, the Indian real estate market is estimated to touch 1.04 trillion dollars with a CAGR of 25.6 per cent. Looking at this steep growth, one might think of investing in this sector. But as an investor, have you thought of investing in an under-construction property? These properties are usually cheaper and prices are marked at 20 per cent lower than that of the constructed ones. Since buying a property asks for a large sum, you might consider taking a loan in order to complete the purchase. 

There are some home loans which are specifically designed for under-construction properties to help you take a step closer to your dream home. While considering such a loan, you might consider some pertinent factors to minimise your risks and maximise your benefits. 

Also Read: Outlook Money's Budget 2025 Coverage

Nature of Under-Construction Loans

We all know what an under-construction property means. When you invest in such a property, you are eligible to own the house only after the development is done. Now, unlike the usual home loans, granted on ready-to-move properties, these loans are only for under-construction projects. These loans have a unique disbursement approach, where the loan amount is given in stages according to the progress of the construction of the said property. But these periodical disbursements also impact EMI and repayment amounts. 

EMI on Under-Construction Home Loans

The EMI does not immediately start after acquiring a home loan for under-construction property. Instead, the EMI follows a specific structure in alignment with the phases of construction of the property. Here is the EMI structure:

1. Loan Disbursement: The total loan amount is given out in phases. These phases are called tranches.

2. Pre-EMI: While the construction is going on, a borrower will pay the interest on the disbursed loan amount; this interest is known as Pre-EMI. This pre-EMI continues until the full loan amount is disbursed or the property is ready to be moved in and is usually lower than the full EMI.

3. Full EMI: When the entire loan amount is disbursed, or the construction is complete and the property is ready to be handed over, the borrower then starts paying out the full EMI, which includes both principal and interest.

The timing of these payouts is to be taken under serious consideration by any borrower. Plan your finances effectively prior to applying for such a loan, especially during the pre-EMI period. This pre-EMI period can hamper your budget, more so if you are paying rent or have other investments to manage. 

Factors to Keep in Mind

Here are some factors that you should look out for while obtaining an under-construction home loan: 

1. Choose the Right Builder

With the steep growth of real estate, builders are selling properties at higher prices than they are worth. A property is not only about its designs and appearance, or its state-of-the-art features. You, as a buyer, must also ensure that the builder has legal approval to construct the property. A commencement certificate from a builder means that the builder can continue the contract and isn't involved in any legal disputes. 

2. Lender Who Helps with Property Evaluation 

Choosing the right lender is as important as selecting the right builder. The right lender not only gives you a loan with reasonable interest but also helps you with evaluation of the property itself. A lender with a property analysis service can actually help you gauge the builder's credibility and make sure that you are parking your money at the right place. 

3. Keep track of the construction 

Make sure that you are keeping tabs on the progression of the construction as your Pre-EMI pay-outs depend on it. This will help you understand whether or not the lender should release the next payment and whether your payments are regular. 

4. Negotiate prices

Do not forget to negotiate on the property price, because the builder will usually start with a higher ask. Before doing so, verify every legal aspect of the property meticulously, this will help you set a price for your consideration. 

By negotiating a lower price, you can reduce the loan amount, which will eventually reduce both the pre-EMI and full EMIs. 

When you have limited resources but your dream home is just one step away, an under-construction home loan might be the right choice to bridge the gap. Make sure to choose the right lender and right builder, and keep track of the constrictions for proper disbursement of funds, and your dream of a perfect home will come true.