Home Loan for Under-Construction Property – Eligibility, Process & Best Banks

Buying a home is one of the most important financial decisions you’ll ever make. If you’re considering investing in an under-construction property, understanding the nuances of financing it is crucial. Home loans for such properties differ significantly from loans for ready-to-move-in homes. This comprehensive guide will walk you through everything you need to know about getting a home loan for an under-construction propertyin 2025.

What Is an Under-Construction Property?

An under-construction property is a residential unit that is still in the building phase and does not have an occupancy certificate yet. These properties usually come at a lower price compared to completed homes and offer flexible payment plans. However, financing an under-construction home requires a different approach.

Can You Get a Home Loan for an Under-Construction Property?

Yes! Most banks and housing finance companies (HFCs) provide home loans specifically for under-construction properties. However, the disbursement process, interest calculations, and documentation can vary from loans for ready properties.

Key Features of Home Loans for Under-Construction Properties

1. Loan Disbursement in Stages (Progress-Linked Disbursement)

The loan amount is disbursed in phases based on the construction progress, instead of a lump sum. This phased approach protects both the lender and borrower by aligning payments with actual construction milestones.

2. Pre-EMI Payment

Until the full loan amount is disbursed, you’ll pay only the interest on the amount disbursed so far known as Pre-EMI. Once construction completes and the entire loan is disbursed, regular EMIs (principal + interest) start.

3. Approved Projects & Builders

Loans are generally approved only for properties built by RERA-registered builders with all necessary approvals. Choosing a reputable developer ensures smoother loan processing and reduces legal risks.

4. Loan-to-Value (LTV) Ratio

Lenders typically finance 75%-90% of the property value for under-construction homes, requiring you to arrange the remaining amount as a down payment.

Documentation Required for Home Loan on Under-Construction Property

• Builder-buyer agreement or allotment letter
• Construction schedule and approved building plan
• Commencement and occupancy certificates (if available)
• Applicant’s ID proof, address proof, income proof (salary slips, IT returns, bank statements)

Tax Benefits on Home Loan for Under-Construction Property

You can avail tax benefits under the Income Tax Act:

• Section 80C: Deduction of up to ₹1.5 lakh on principal repayment (only after possession).
• Section 24(b): Deduction of up to ₹2 lakh on interest paid. Interest paid during construction can be claimed in 5 equal instalments post possession.

Risks & Precautions When Buying Under-Construction Property

• Project Delays: Construction delays can impact your possession timeline and loan repayment schedule.
• Builder Credibility: Always verify the builder’s track record and project approvals before investing.
• Loan Approval Risks: Missing documents or non-compliance with lender norms can lead to loan rejection.

How to Apply for a Home Loan on Under-Construction Property?

1. Check Eligibility

Use an online loan eligibility calculator.

2. Choose a Lender

Compare interest rates, processing fees, and customer reviews.

3. Submit Documents

Provide all necessary documents for smooth processing.

4. Loan Sanction & Disbursement

Loan gets sanctioned and disbursed in stages aligned with construction.

5. Start Pre-EMI

Pay interest only during the construction period.

FAQs About Home Loans for Under-Construction Properties

1: Can I get a home loan for a property still being built?

Yes, banks provide home loans for under-construction properties subject to project approvals.

2: What is Pre-EMI and when do I pay it?

Pre-EMI is the interest payment on the disbursed loan amount before full disbursement. It is paid during construction.

3: Are tax benefits available before possession?

Tax benefits on principal and interest are available only after possession. Interest during construction can be claimed over five years post possession.

4: Can I get a loan for properties from non-RERA registered builders?

Most banks prefer RERA-registered projects for sanctioning loans to minimize risks.

Conclusion

A home loan for an under-construction property is a smart way to own your dream home without paying the full amount upfront. Understanding the loan process, benefits, and risks can save you from future financial hassles. Always choose a reputable builder, complete your paperwork diligently, and stay informed about your loan status.

Call to Action

Ready to finance your under-construction home? Compare home loan offers from top lenders, calculate your EMI and apply online effortlessly. Your dream home is just a loan away.