Home Loan For Under Construction Property: Eligibility, Benefits & How To Apply Online

After living on rent for more than a decade, Neha has finally decided to purchase a house. However, she has chosen an under-construction property to invest in as these are comparatively cheaper than other properties. Also, if she avails of a home loan to finance that, it will become much more affordable for her.

However, before moving forward, there are some intricacies of a home loan for under-construction properties that potential borrowers must know. Scroll down to know what they are.

Features And Benefits Of Home Loan For Under-Construction Properties

Here are some useful features and benefits of home loans for  under-construction properties:

• Affordable EMIs: Usually, once the loan is sanctioned, borrowers get the funds in instalments as per the progress of the construction. Since the rate of interest gets imposed on that particular amount that is getting disbursed, EMIs automatically become cheaper. 
• Convenient Interest Payments: Since you are availing the loan for an under construction property, you need to bear the interest component payment only until you get the possession. This is known as PPI or Prior Period Interest. 
• Flexible Repayment Terms: Generally, lenders allow borrowers to avail these loans for a repayment tenure of up to 30 years. However, certain factors, including borrowers’ age, are assessed before allowing that. 

Other than these, availability of tax benefits, attractive interest rates, etc., are some additional reasons why one should go for this form of credit.

Interest Rates on Home Loan For Under-Construction Properties

Here is a list of interest rates on home loans reputed lenders are offering:

Lender	Interest Rate
Navi	Starts from 6.46% p.a.
Bank of Baroda	Starts from 6.50% p.a.
HDFC Bank	Starts from 6.70% p.a.
SBI	Starts from 6.65% p.a.
ICICI Bank	Starts from 6.70% p.a.

Eligibility Criteria For Under-Construction Property Loan

If you want to make the most of the benefits of home loan for under-construction properties, you must meet these eligibility criteria:

• Age – Applicants should be aged between 18 and 70 years to qualify for this loan. However, this parameter might vary depending on whether you are a salaried individual or a self-employed one.
• Employment History – One should have a total work experience of 3 years to be eligible for this loan. The monthly income should be between Rs. 25,000 and Rs. 40,000, and EMI obligations cannot exceed 65% of this income.
• Credit Score – A CIBIL score of 750 and above is necessary to get prompt approval on a home loan for under construction properties.

Other than these, you should also check the LTV lenders are offering, whether they are looking for a co-applicant, additional lender-specific aspects, etc. 

Also Read: Home Construction Loan: Features, Eligibility, Interest Rates And Documents Required

Documents Required For Under-Construction Property Loan

The document requirements vary across different lenders, and it is advisable to go through all the lender-specific criteria before submitting the loan application. Here is a list of documents you need to furnish to avail a home loan for under construction properties:

• Proof of income 
• KYC documents
• Khata extract and Khata certificate 
• Agreement made with the builder (should be duly stamped and registered)
• NOC issued on the letterhead of the builder
• Sale deed
• A letter stating how the project is progressing from the builder or architect

In case the registration of the project is not complete, borrowers can obtain certain papers from the builder before applying for a home loan. One can claim the following documents in this regard:

• An actual agreement copy with the builder
• Authority letter copy that is acknowledged by the architect/ builder
• Evidence of own contribution amount  

Apart from these, your chosen lender might ask for additional documents. Make sure to check the website and the documents required for this loan before you apply for the housing loan.

How To Avail A Home Loan For Under-Construction Property At Navi 

The process to avail a housing loan for under construction properties is somewhat similar for every lender. In case you are applying for the loan at Navi, here are the steps you need to follow:

• Step 1: Download the Navi app.
• Step 2: In case you are using the application, make sure to register yourself first using your contact number. 
• Step 3:  Provide your personal and employment details over there. Make sure to enter your Aadhaar and PAN details as well.
• Step 5: Select the city the concerned property belongs to and provide the property details.
• Step 6: Check your loan eligibility after submitting all this necessary information. Make sure to submit your personal and property documents too. 

In case you are investing in under-construction properties, you might require a sizeable amount. Navi offers home loans of up to Rs. 10 crore at an interest rate starting from 6.46% p.a. Even though you get access to such a large amount at an affordable interest rate, it is advisable to obtain as much as you truly need. 

Before making such long-term commitments, use Navi’s EMI calculator to evaluate your monthly obligations.

Also Read: How To Use An EMI Calculator For Rs. 60 Lakh Home Loan?

Things To Consider Before Availing A Home Loan For Under-Construction Properties

Other than assessing EMIs, there are some additional aspects borrowers should pay heed to before taking a home loan for under construction properties:

• Go Through The Commencement Certificate 

It is necessary to know that every construction project does not get legally approved. Before investing in such a property, you should go through all the relevant documents to avoid the unwanted hassle. Check if the builders have the commencement certificate with them, and they have gotten approval from concerned authorities. 

• Keep A Tab On The Progress Of The Construction Project

When you are spending a huge amount on a specific property, you should track its progress. This way it becomes easier for you to understand if the disbursal of the loan installments is going on according to the set schedule. In case you notice any kind of discrepancy, get in touch with the lenders and ask them to hold the loan disbursal. 

• Look For Applicable Tax Benefits 

When you opt for a home loan for under construction properties, you are eligible for tax benefits. Under Section 80C of Income Tax Act, 1961, a home loan borrower can claim tax deductions of up to Rs. 2 lakh for the interest paid annually. Apart from this, it also allows tax deductions of up to Rs. 1.5 lakh for principal repayment on home loans for under construction properties. 

You should also know that you can claim the tax deductions on interest paid only when the construction of the house is complete within 5 years. 

Also Read: Deductions Under Section 80C Of Income Tax: Eligible Investments And Expenses

Final Word 

These days home loans for under-construction properties are available at moderate interest rates. However, apart from the rate of interest, one should also check the processing charges and applicable taxes before making a decision. 

FAQs On Home Loans For Under-Construction Properties

1. How will it benefit me if I apply for a home loan for under construction property with a co-borrower?

It is not mandatory to have a co-applicant avail a home loan for an under construction property. However, applying with a co-borrower does come with certain advantages. Especially if you have a poor credit score and your co-borrower has a decent one, it helps in getting prompt approval for the loan. Also, note that if the property has multiple owners, you have to include them as co-applicants. 

2. What should I do to improve my home loan eligibility?

These are some of the ways in which you can improve your home loan eligibility:

• You can have a co-borrower to avail a home loan for an under construction property with you.
• Clear your existing dues within the stipulated time to increase your credit score.
• In case you have some additional income sources, mention them to your lender.
• Go for a longer tenure.

3. Will the pre-EMI be totally taxable?

Under the Income Tax Act of India, a home loan borrower can claim pre-construction interest. However, that is possible only when the property construction is done in five equal instalments. Note that to claim the interest component, completion of the property construction will be necessary. 

4. What are two types of home loan interest rates?

Home loan interest rates are of two types — fixed interest rate and floating interest rate. In the case of the former, the equated monthly instalment amount stays the same for the entire repayment tenure. On the other hand, floating interest rates keep changing depending on the market condition and the change of lending rates. 

5. How can I lower the interest burden of my home loan for an under construction property?

In order to reduce the interest burden of your existing home loan, you can follow these tips:

• Go for a shorter tenure, as that will automatically help in decreasing the total interest payable.
• Make use of the part-payment feature as that reduces not only the monthly instalment amounts but also the overall interest outgo.
• Refinance your existing housing loan to another financial institution that is offering a comparatively lower interest rate.

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