Owning a house is a dream for many, and many work hard to achieve it. Some individuals apply for home loans while their houses are still under construction. Here are some key points to consider when applying to this scenario:
Application Process: A home loan for a property under construction is possible. When applying, ensure that all relevant documents, including ID proof, address certificates, income information, and property documents, are submitted to the bank or Non-Banking Financial Company (NBFC).
Legal and Technical Verification: The bank verifies whether the house’s construction is legal. This involves examining all relevant documents to determine whether the building complies with government regulations and whether the construction process is technically sound.
Loan Agreement: Once the home loan is approved, the borrower must sign a loan agreement. This document outlines essential details such as interest rates, EMI tenure, the sanctioned loan amount, processing fees, and any conditions attached to the loan.
Request for Loan Disbursement: As the property is under construction, the borrower must submit a request for immediate loan disbursement to the bank.
This should include the builder’s demand letter detailing the construction work’s progress and the funds required.
Loan Disbursement in Installments: Unlike purchasing an already constructed home, a home loan for an under-construction property is released in installments.
As the builder completes various construction phases, the loan funds are disbursed in multiple installments to ensure efficient utilization.
Pre-EMI Payments: Until the house is constructed, the borrower is only required to pay pre-EMI, which refers to the interest on the loan.
After construction, the borrower will repay the principal amount through monthly EMIs. Those with a stronger financial position may start repaying the principal from the first month.
Important Considerations:
Choose the Right Builder: Opt for a builder with a strong track record of successful construction projects. A reputable builder increases the likelihood of loan approval.
Ease of Loan Repayment: Since the loan is taken during construction, plan your EMIs. Based on your financial capacity and income level, determine how much you can afford to pay each month and how long it will take to repay the loan.
Interest Rate: Select a bank or NBFC that offers loans at the most competitive interest rates. Be sure also to consider the processing fees to minimize overall costs.
Considering these points, you can more effectively navigate the home loan process for an under-construction property.