Have you found the perfect under-construction property but worry about financing? You’re not alone. Many aspiring homeowners want to customize their future homes, but funding uncertainties can be a major hurdle. Concerns about managing payments during construction or choosing the best loan options can make homeownership overwhelming. That’s where Home Loans for Under-Construction Properties come in.

With flexible terms and competitive rates starting at 8.50% p.a., we help you navigate these challenges and turn your dream home into reality with ease and confidence.

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What is An Under – Construction Property?

An under-construction property is a real estate project that is currently being built but has not yet been completed or made available for occupancy. Buyers purchase these properties during the construction phase, often benefiting from lower prices and the opportunity to customize certain features.

Investing in an under-construction property typically involves agreeing to a timeline for completion, with payments structured according to construction milestones.

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Home Loan Interest Rates For Under Construction Property 2024

Bank/ HFCs	Interest Rate
ICICI Bank	9.00% p.a. onwards
SBI	9.40% p.a. onwards
Bajaj HFL	8.55% p.a. onwards
LIC HFL	8.65% p.a. onwards
Punjab National Bank	8.60% p.a. onwards
IDBI	8.55% p.a. onwards
Tata Capital HFL	8.75% p.a. onwards
Canara Bank	8.55% p.a. onwards
Bank of India	8.40% p.a. onwards
Karur Vysya Bank	9.00% p.a. onwards

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Eligibility Criteria of Home Loan for Under Construction Property

Before applying for a home loan, it’s essential to understand the eligibility criteria set by banks and Housing Finance Companies (HFCs). These criteria help lenders assess your financial capability and repayment potential. 

Here’s a breakdown of the common eligibility criteria most lenders look for when processing home loan applications.

Criteria	Requirements
Age	21 – 65 years
Income Criteria	Stable income is required
Employment Profiles	Salaried Self employed non professionals Self employed professionals
Credit Score	750+
Nationality	Indian residents NRIs

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Documents Required

Banks and financial institutions require various forms of identification, financial statements, and property-related documents to assess your eligibility and process your loan application.

General Requirements 

Category	Documents Required
Application Form	Duly filled and signed along with three photographs
Proof of Identity	PAN Card / Driver’s License / Voter ID / Passport / Aadhar Card
Proof of Residence	Driver’s License / Ration Card / Voter ID / Passport / Aadhar Card / Registered Rent Agreement
Proof of assets held	LIC, NSC, KVP, Mutual Funds, Property

Proof of Income

Salaried	Self Employed	Farmers / Agriculturists
Latest 3 months salary slips (latest 1 month for guarantors).	Balance Sheet, Profit & Loss A/C, and Income Computation for the last 2 years.	Revenue officer certificate for the past 2 years’ income.
Form 16 and ITR of the last year.	ITR for the last 2 years (with Form 26 AS and Traces).	Land revenue records (Form 6, 7/12, 8A).
Copy of employee identity card provided by the employer.	Business proof (Gumasta License, Registration Certificate, Service Tax Registration, etc.).	Bank account statement for the last 12 months.
Employment-related documents (Appointment / Confirmation / Promotion / Increment letter).	IT assessment and clearance certificate, IT challans, TDS certificate (Form 16A).
6 months bank account statement (salary account or individual account).	Bank account statement for the last 12 months (for individual or business).

Property Documents

• Agreement for sale
• Approved blueprint and plan copy
• Commencement Certificate
• A copy of the agreement with the lender
• Documentation showing the funds contributed for the house
• Payment receipt from the sub-registrar
• A copy of the authority letter sent to the sub-registrar, duly acknowledged

Documents for NRI/PIO/OCI

Category	Documents Required
Identification and KYC Documents	Document Establishing KYC: Basic KYC requirements. Copy of Passport: Showing the page of residence visa.
Employment and Income Verification	Salary Certificate: Issued by employer, stating details like name (as per passport), designation, passport number, date of joining, and latest salary, all mentioned in English. Salary Slips: Last 3 to 6 months’ slips reflecting variable components like incentives, overtime, etc. Proof of Employment: Documents like work permit, labour contract, etc., provided by the Government of the residing country. Income Documents Attested by Embassy: Required if there’s no documented evidence for salary credit or fund remittance to India. Email ID of HR (Employer): To verify employment details. Employment Profile: Documenting the last 5 years of employment history.
Business Documents for Self-Employed NRIs	Business Related Documents: Includes Trade Licences, Sponsor Agreements, Power of Attorney, etc. Credit Report: From Overseas credit agencies (except for Merchant Navy). CDC: Required in case of Merchant Navy.
Financial Statements	Overseas Bank Statement: Copies from overseas banks for the past 6 months. NRO/NRE Bank Statement: Last 6 months to trace the financial transactions in India.
Property Related Documents	Property Documents: Including cost estimates from an Indian Architect or Engineer.
Legal and Power of Attorney	Power of Attorney: If the applicant is unavailable in the country at the time of signing documents, a Power of Attorney needs to be produced by the person acting on their behalf.

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Benefits of Under Construction Home Loans

Affordable EMIs

Home loans for under-construction properties offer lower EMIs by disbursing funds in stages based on construction progress. Interest is charged only on the released amount, easing your financial burden during the early phases.

Convenient Interest Payments

You pay only the interest until the property is ready for possession. Afterward, EMIs include both principal and interest, simplifying your payment schedule.

Flexible Repayment Terms

These loans typically offer repayment periods up to 30 years, allowing you ample time to repay comfortably. Lenders consider factors like your age to determine the suitable tenure.

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Phases of Home Loan Disbursement for Under-Construction Properties

1. Loan Approval and Sanction

• Application Submission: Apply for a home loan by submitting necessary documents such as income proof, property details, and identification.
  
• Loan Sanction: The bank reviews your application and sanctions a loan amount based on factors like your income, credit score, and property value.

Example: You are approved for a home loan of ₹70 lakhs at an interest rate of 8% per annum.

2. Agreement with Builder

• Signing the Agreement: Enter into a sale agreement with the builder, which outlines the construction timeline and payment milestones.
  
• Loan Agreement: Sign the loan agreement with the bank, specifying the disbursement schedule tied to construction milestones.

3. Disbursement in Installments

• Phase-Based Release: Unlike standard loans disbursed in a lump sum, loans for under-construction properties are released in multiple installments based on construction progress.
  
• Example:
  • First Disbursement: ₹14 lakhs when 25% of construction is complete.
  • Second Disbursement: ₹14 lakhs when 50% of construction is complete.
  • Third Disbursement: ₹14 lakhs when 75% of construction is complete.
  • Final Disbursement: ₹14 lakhs upon project completion.
    

4. Understanding Pre-EMI Payments

• Interest During Construction: As the bank releases funds in phases, it charges interest only on the disbursed amount until the entire loan is disbursed.
  
• Pre-EMI Calculation: You pay a Pre-EMI, which is the interest on the amount disbursed so far, without repaying the principal.
  
• Example:
  • After First Disbursement (₹14 lakhs):
    • Pre-EMI: (₹14,00,000 × 8%) / 12 = ₹9,333 per month.
    After Second Disbursement (₹28 lakhs total):
    • Pre-EMI: (₹28,00,000 × 8%) / 12 = ₹18,666 per month.
    After Third Disbursement (₹42 lakhs total):
    • Pre-EMI: (₹42,00,000 × 8%) / 12 = ₹28,000 per month.
  
  Note: These Pre-EMI payments cover only the interest on the disbursed amount up to that point.

5. Transition to Standard EMI Payments

• Commencement of Full EMIs: Once the construction is complete and the final disbursement is made, you begin paying the standard EMI, which includes both principal and interest.
  
• Example:
  • Total Loan Amount: ₹70 lakhs.
  • Remaining Principal After Construction: ₹70 lakhs.
  • Standard EMI Calculation: Using a standard EMI formula, your monthly EMI might be approximately ₹68,000 (actual EMI depends on loan tenure and exact interest calculations).

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Opting for Pre-EMI on a Home Loan for an Under-Construction Property

When financing an under-construction property, choosing between Pre-EMI and regular EMI can significantly impact your finances. Here’s what you need to consider:

What is Pre-EMI?

Pre-EMI stands for Pre-Equated Monthly Installment. During the construction phase, lenders disburse the loan in stages based on progress. With Pre-EMI, you pay only the interest on the amount disbursed, not the entire loan amount. This approach results in lower monthly payments initially.

Pre EMI vs Regular EMI

Imagine you decide to purchase an under-construction property and secure a home loan of ₹90 lakh at an interest rate of 9% per annum. With a repayment tenure of 30 years, this loan structure allows you to manage your monthly payments comfortably while your dream home is being built.

Regular EMI Calculation

Regular EMI: ₹72,450/month

• Includes both principal and interest.
• Reduces the outstanding loan amount over time.

Pre EMI Calculation

1. First Month:

• Amount Disbursed: ₹18 lakh
• Interest Calculation:
  • Interest Rate: 9.00% p.a.
  • Monthly Interest: ₹18,00,000 × 0.09 / 12 = ₹13,500
• Pre-EMI Payment: ₹13,500/month

2. After Six Months:

• Total Amount Disbursed: ₹36 lakh
• Interest Calculation:
  • Monthly Interest: ₹36,00,000 × 0.09 / 12 = ₹27,000
• Pre-EMI Payment: ₹27,000/month

3. Post Construction:

• Full EMI Activation: ₹72,450/month
  • Includes both principal and interest.
  • Begins once the entire loan amount is disbursed and the property is ready for possession.

Which Option is Better for You?

Choose Pre-EMI If	Choose Regular EMI If
You need to manage cash flow carefully during the construction period.	You have sufficient financial resources to handle higher monthly payments.
You’re paying rent and cannot afford full EMIs alongside it.	You aim to minimize the total interest paid and repay the loan faster.
You prefer lower monthly payments initially.	You want to reduce the overall loan tenure.

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Downsides of Opting For a Under Construction Property Home Loan

• Builders may default or face financial issues, leading to incomplete projects and loss of investment.
• Extended loan tenure due to delays can result in paying more interest over time.
• Additional costs may emerge during construction, increasing the overall expense beyond initial estimates.
• Buying before completion limits your ability to inspect the final quality and specifications of the property.
• Your investment relies heavily on the builder’s reputation and ability to deliver as promised.
• Property values may decrease during the construction period, affecting your investment’s potential return.
• Changes in real estate laws or zoning regulations can impact project viability and your investment.
• Paying interest without reducing the principal can lead to higher financial obligations once full EMIs begin.

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Tax Benefits on Home Loans for Under Construction Properties

Claiming Interest Deduction

• Eligibility: Deduction on interest repayment is available once the home construction is completed within 5 years.
• Amount: You can claim the total interest paid, up to ₹30,000 annually if construction exceeds 5 years.
• Installments: Deduct the interest in five equal installments starting the year you take possession.

What is Pre-Construction Interest?

Pre-construction interest, or Pre-EMI, is the interest charged on the disbursed loan amount during the property’s construction phase. You pay only the interest on the amount released by the lender until the property is ready for possession. Once construction is complete, regular EMIs covering both principal and interest begin.

Section 24 – Tax Savings on Under-Construction Property

• Interest Deduction: Under Section 24, you can claim tax deductions on the interest paid for home loans used to acquire or construct a property.
• Pre-Construction Period: For under-construction properties, the interest paid during the pre-construction phase can be deducted in five equal installments starting from the year construction is completed.
• Limits:
  • Self-Occupied Property: Deduction up to ₹2 lakh per annum.
  • Let-Out Property: Full interest amount is deductible.

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Conclusion

Securing a home loan for an under-construction property in India isn’t just about getting the finances—it’s a strategic decision that can save you money and lets you witness your dream home coming to life.

Ready to take the first step towards your new home? Connect with Credit Dharma for expert guidance. We provide free consultation calls to help you find the best under-construction home loan tailored to your needs.

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Frequently Asked Questions