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under construction property home loan

Home loan in India is supposed to be among one of the best credit tools available in today’s investment scenario. There is a wide array of Home loans available to suit the needs and requirements of the homebuyer. Various banks offer a loan for Under construction property, where the home is not yet completely constructed. Under this, the loan is disbursed in small parts based on the construction phases and progress. The builder will pay interest on this loan amount till the house is completed and possession is given over to the buyer. Once the house is handed over to the customer, he will start paying the EMIs.

The bank or the financial institution handing out the loan and the builder will have an agreement as to when the loan will be disbursed and the various stages of the project. The bank will release the loan as per the agreement only on the confirmation of the stages of construction within the time frame.

Additional Reading: Know More About Your Home Loan 

Eligibility Criteria

  • Age: Between 18 yrs – 70 yrs.
  • Annual Income- Minimum of Rs. 5-7 lakhs depending on the type of employment
  • Kind of Employment- Salaried, Self Employed, Self Employed Professional.
  • Employment: Minimum of 2 years in current business or profession.
  • Status of Residence: Minimum 1 year at the current address
  • Credit score: 700 or above

Additional Reading: Home Improvement Loan

Characteristics for Home Loan Under Construction

  1. Property price turns out cheaper: A major benefit of buying an under-construction home is the cheaper price. A ready to move home is much expensive than an under-construction property. You can save at least 25% – 35% of the overall price if you purchase an under-construction property.
  2. Negotiation is possible: One gets an option to negotiate with the lender if the applicant’s credit score is very high. A loan against property is a deal of better profit for the lender as the disbursement of the loan does not happen at once. But the interest on the total amount will start accumulation form the day of the first disbursal. Hence the profit of the lender increases. One can take advantage of the same by negotiating the interest rate as the lender will never want to lose a valued customer
  3. A smarter means of investment: Acquiring an under-construction property is one of the most sensible and smart means of investment. Once the property is ready and handed over, the price will tend to increase by almost 30% to 35%. If you have bought the property as an investment, selling the home once it is ready at that time, you will earn a really good profit.
  4. Income Tax benefits: The tax benefit of an under-construction home loan is much more than a general home loan. Under Section 80C, A Tax exemption on interest payments of up to Rs. 2 lakhs under Section 24B Rs. 1.5 lakhs on principal repayment can be availed. A loan taken for an under-construction property can get tax rebates only after the Occupancy Certificate is procured from the builder.

The time period for under construction loan

One of the important clauses under the home loan under construction is the Time period. It includes –

  1. Pre-construction period This is the time period from when the loan is taken to the phase before the construction of the home begins.
  2. Prior Period Till the construction is finished and the house has been handed over, this period is called “Prior Period”. The interest paid in both the duration is called PPI (Prior period Interest).


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