Home Loan Disbursement Process for Under-Construction Properties

There are different types of home loans. While most people are aware of home loans for purchasing a house, did you know that you can acquire a home loan for under-construction properties? The features and procedure for home loan disbursement for under-construction properties are quite different than standard home loans. Let’s understand how home loans for an under-construction property work and what is their disbursement process.

What are Home Loans for Under-Construction Properties?

Constructing a new home requires a lot of capital. Home loans for under-construction properties provide you with the necessary finances you need to build your dream home. Under-construction properties are quite popular amongst home buyers because their value is usually 10%-20% less than readymade homes.

Disbursement of Home Loan for Under-Construction Properties

The home loan disbursement process for under-construction properties is not like the disbursement of normal home loans. While normal home loans are disbursed in one instalment, loans for under-construction homes get disbursed in instalments as the construction progresses. Home loan disbursement stages depend on the completion of construction.

As the home loan disbursement process is different, so is the repayment. The concept of Pre-EMI becomes important here. As the disbursement is not upfront, it may take a while for the entire loan amount to get disbursed. But as the bank starts releasing the funds in a phased manner, they will begin charging interest.

During this stage, you don’t need to pay the full EMI (i.e., principal + interest) for the sanctioned amount. You only need to pay the interest portion, also called ‘Pre-EMI’. Pre-EMI only consists of the interest on the amount that has been disbursed to the builder.

Practical Illustration

Here’s a practical illustration to understand the procedure for home loan disbursement for under-construction properties:

Suppose, you have availed of a loan amounting to ₹50 lakhs at 8% per annum. Initially, the bank disbursed ₹12 lakhs. Therefore, you will have to pay a Pre-EMI of ₹8000 per month [(₹12 lakhs x 8%)/12 months]. If the bank disburses another ₹12 lakhs, then the per month Pre-EMI will increase to ₹16,000. This only consists of the interest portion and not the principal portion. Your normal EMI will start after the bank disburses the loan amount.

The facility of Pre-EMI is available only on under-construction properties and not for readymade properties as in the case of the latter where the loan amount is disbursed in one instalment. Pre-EMI reduces the financial burden of loan repayments as EMIs do not begin until the property is ready. Further, the interest needs to be paid only on the amount disbursed by the bank irrespective of the sanctioned amount.

In a Nutshell

The home loan disbursement process for under-construction properties is different from regular home loans. The differentiating features of Pre-EMI and instalment-wise disbursement make them an attractive option to borrowers. However, selecting the right lender is crucial here.

If you wish to apply for home loans for under-construction properties, IIFL Home Loans is the preferred option. It provides affordable interest rates and quick processing of loans. You can also calculate the home loan EMI using the IIFL Home Loan EMI calculator. You just need to enter the loan amount, interest rate and tenure of the loan. You should remember that the EMI calculator assists you in calculating the loan EMI and not Pre-EMI. Apply for home loans today!

Frequently Asked Questions

Q1: How are standard home loans different from home loans for under-construction properties?

Ans: The former is for readymade properties whereas the latter is for under-construction properties. The second major difference is the home loan disbursement process. While standard home loans are disbursed in one go, home loans for under-construction properties are disbursed in instalments based on the stage of construction.

Q2: What is Pre-EMI on a home loan for an under-construction property?

Ans: Pre-EMI is the EMI portion that only consists of the interest component. Until the full loan amount is disbursed, the bank charges only interest on the amount disbursed in a phase-wise manner. This is known as Pre-EMI.

Q3: Is a home loan for an under-construction property a secured loan?

Ans: Yes, a home loan for an under-construction property is a secured loan that comes with an affordable interest rate.

Q4: How to apply for a home loan for an under-construction property?

Ans: Firstly, you need to select a lender like IIFL Home Loans. After deciding on the lender, you need to apply along with relevant supporting documents. After verifying your application, the lender will begin the approval process.

Q5: Can EMI payments begin after the first instalment is disbursed in a home loan for an under-construction property?

Ans: Yes. Some lenders also provide an option to begin repayment of EMI after the first disbursal itself. However, you should communicate this option to your lender.