Loan for Home

Home loans for under-construction properties: Detailed process

By Tata Capital
30 December 2025
9 mins read
1944

Apart from choosing a trendy exterior design and exceptional décor, what else is key to building your dream home? Funds, of course! Nowadays, with housing finance, you can pay for labor costs, construction materials, and additional construction expenses.

Besides, with a home loan for construction, you don’t have to handle a huge loan amount at once. Yes! You get funds precisely as and when the construction requires.

For ready-made houses, lenders often disburse funds in one go. However, for an under-construction property, the lender releases the approved loan amount in several installments. The disbursal depends on the construction progress.

But, before you approach a lender, here is all you need to know about a home loan for an under-construction property.

Housing loan process for an under-construction property

1. Choosing your lender: Any borrower’s first instinct is to pick a lender that offers the most attractive home loan interest rates. While that should be a priority, you should also look for processing fees, pre-payment charges, foreclosure fees, and other miscellaneous charges.

Also, the loan amount is finalized based on the building prints and construction blueprints. Once fixed, you cannot change the construction plan. Therefore, keep the final outline for the property ready before approaching the lender.

You should also use a loan EMI calculator to get hold of ideal EMIs and interest payable in advance.

2. Applying for the loan: Once you have zeroed in on a lender, you can begin with the application process. This step usually includes filling out an application form, providing the necessary documents, and paying the processing fee. The paperwork required for under-construction housing loans varies from that of regular housing loans.

Here’s the list of documents you need to submit for a home loan for an under-construction property:

i. KYC (Know Your Customer) documents to show your income proof

ii. Khata Certificate and Khata extract

iii. Letter from builder/architect indicating the progress of construction

iv. No Objection Certificate (NOC) from the builder on their letterhead

v. Sale deed

vi. Agreement with the builder duly registered and stamped

If the registration of your residential project is still pending, you must seek the following documents from the builder:

i. A true copy of the agreement with the builder

ii. Original copy of ‘money receipt’ issued by the Sub-Registrar

iii. Own contribution amount proof

iv. Acknowledged copy on the authority letter, addressed by the applicant to the Sub-Registrar

v. Copy of the authority letter acknowledged by the builder

3. Loan sanction and disbursement: Once your home loan for the construction of a house is approved and all your documents are verified, the lender will sanction the promised loan amount within a week or two.

Home loan disbursement process for an under-construction property

The home loan disbursement process for an under-construction property is a little different than when you buy a ready-to-move-in property. It’s structured in a way that aligns with the construction progress. Instead of releasing the entire loan amount at once, the lender disburses the funds in stages, which matches the pace of construction. This ensures the money is used responsibly and safeguards both the borrower and the bank.

Let’s understand the home loan disbursement process for an under-construction property below.

Step 1: Loan approval and agreement

It all begins with your home loan application. Once you’ve chosen your lender and submitted your documents, the bank will assess your eligibility. If everything checks out, you receive a sanction letter. This letter states your loan amount, interest rate, tenure, and terms of repayment.

Next comes the loan agreement, a crucial document outlining the terms and conditions of your loan. This is a formal commitment between you and the lender, so take your time to read the fine print before signing.

Step 2: Tied to construction milestones

What sets under-construction home loans apart from regular loans is that the disbursement is linked to the construction stages. This is also referred to as “progress-linked disbursement.” The idea is simple: funds are released in tranches as the builder completes key stages like the foundation, structure, brickwork, and finishing.

Step 3: Request for disbursement

Each time the builder completes a phase, they’ll raise a demand for payment. Based on this, you’ll need to submit a disbursement request to your lender.

Step 4: Verification and inspection

Now, the lender will send a representative, often a civil engineer or valuer, to the site to verify the construction progress. This step acts as a quality control check to ensure that the work is actually being done as claimed during the under-construction home loan process.

Step 5: Disbursement of funds

Once everything is in order, the lender proceeds with the payment release. This is either credited directly to the builder or routed through your loan account, depending on the agreement. This process continues in phases until the entire loan amount is disbursed.

Step 6: Repayment begins

Your loan repayment starts from the first disbursement, not after the full amount is released. You’ll be given the option to start paying either EMIs (which include principal + interest) or pre-EMIs (interest-only on the disbursed amount). Most people opt for pre-EMIs during the construction period.

Step 7: Final disbursement and loan closure

The last installment is usually paid when the property is almost complete and ready for possession. Once the full loan amount is disbursed, your EMI schedule fully starts. This is the start of your repayment journey after the home loan disbursement process for under under-construction property is complete.

Tips for borrowers applying for a home loan on an under-construction property

If you are buying an under-construction property, you need a well-thought-out loan strategy. These home loans are disbursed in stages, tied to construction milestones, making it essential to plan and stay informed.

Research and compare: Start by comparing home loan offers from different lenders to start the home loan disbursement process for an under-construction property. Look at interest rates, processing fees, tenure, and repayment terms. Prepare all required documents such as income proof, ID, and address verification. Don’t forget to ask about hidden charges, too.
Understand the fine print: Review your loan agreement carefully. Pay attention to whether the interest rate is fixed or floating, what the prepayment penalties are, EMI options, and the disbursement process. Understanding these terms helps avoid surprises later.
Negotiate with the builder: Builders are often open to negotiation, especially during launch offers or slower market phases. Even a slight discount on the property price reduces your loan amount and interest burden over time.
Check for pre-approved loans: Some developers tie up with lenders for pre-approved loans. While they can speed up approvals, always compare the terms with other lenders to ensure you’re getting the best deal.
Monitor construction progress: Since loan disbursals depend on construction stages, keep track of site updates. This helps avoid disbursement delays or interest on idle funds.

Eligibility criteria for a home loan on an under-construction property

Here’s the criteria for eligibility for an under-construction flat loan:

Age: You must be at least 21 years old at the time of loan application and no more than 65 when the loan matures.
Income stability: You must have a regular income as a salaried or self-employed applicant with sufficient repayment capacity.
Credit score: A high CIBIL score (generally 700 or above) improves approval chances.
Employment stability: A continual job or business history is preferred by lenders.
Property approvals: The project must have legal clearances and RERA registration.

Pre-EMI and EMI payments during construction

When you take a home loan for an under-construction property, lenders usually offer two repayment options: pre-EMI and full EMI. Pre-EMI for an under-construction property involves paying interest only on the amount disbursed during construction. It keeps the monthly outgo lower initially, but you pay a higher interest amount in the long run.

Alternatively, opting for full EMI means paying both principal and interest from the start, even before possession. While this raises monthly payments, it helps reduce the total loan burden and interest payable over time.

Common challenges in getting a home loan for under-construction flats

The common challenges in under-construction home loan approvals are:

Project approvals: Delays or lack of Real Estate Regulatory Authority (RERA) and local authority approvals can affect loan sanction.
Builder credibility: Lenders may reject projects with weak developer track records.
Construction delays: If there are ongoing or past delays in the builder’s projects, it can increase lender risk and scrutiny, causing loan approval challenges.
Stage-wise disbursement: The funds from an under-construction home loan are released gradually, requiring repeated documentation.
Higher interest burden: Pre-EMI payments can increase total interest cost.
Policy changes: Lending regulations may change during the construction period, impacting eligibility.

Tax benefits on a home loan for an under-construction property

Tax benefits on under-construction home loans are limited until possession. You cannot claim the interest you pay during the construction period immediately. It is treated as pre-construction interest.

The pre-construction interest deduction can be claimed in five equal annual installments under Section 24(b) after possession. The principal repayment deductions (of up to Rs. 1.5 lakh) under Section 80C are available only after the property is completed and possession is received. Timely completion within five years is important to avail the full interest deduction benefits.

Conclusion

Now that you know the under-construction housing loan process, a reliable financier is all that you need. We at Tata Capital provide tailored home construction finance with home loan interest rates starting at 6.90%. Our easy eligibility terms, limited documentation requirements, and flexible repayment options leave little to be desired. Begin your loan planning with our home loan EMI calculator. Connect today!

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FAQs

Can I Get a Loan on an Under-Construction Property?

Yes, you can get a loan for an under-construction property. The loan is disbursed in phases, based on the progress of construction and builder’s demand.

How Much Loan Can I Get for Construction?

You can typically get 75% to 90% of the construction cost as a loan, depending on your income, property value, and the lender’s assessment of your repayment capacity.

How Much Is the Down Payment for an Under-Construction Property?

The downpayment for an under-construction property usually ranges from 10% to 30% of the property's value, based on your loan eligibility and the lender’s policy.

Can We Start Full EMI on an Under-Construction Property?

Yes, you can choose to start full EMIs on an under-construction property, though many opt for pre-EMIs (interest-only) until completion. It depends on your preference and lender terms.

What Is the Pre-Construction Period for an Interest Housing Loan?

The pre-construction period is the time between loan disbursal and the start of property construction or the end of the financial year before construction begins—whichever comes earlier.

Can We Claim Home Loan Benefits for an Under-Construction Property?

You can claim tax benefits on a home loan for an under-construction property, but only after the construction is completed.

Is It Worth Buying an Under-Construction Property?

Buying an under-construction property offers benefits like lower prices and more customisation options. However, it also carries risks such as construction delays. Always check the builder’s track record, legal clearances, and your financial readiness before investing.

What are the eligibility criteria for a home loan on an under-construction property?

The eligibility criteria for an under-construction home loan depend on the borrower’s age, income, credit score, employment stability, and existing liabilities. Lenders also assess the builder’s credibility, project approvals, construction stage, and Loan-To-Value (LTV) ratio. Both salaried and self-employed applicants must fulfill the bank’s specific criteria to secure a home loan for the construction of a house.

How to calculate home loan EMI for an under-construction property?

The EMI on a home loan for an under-construction property is calculated on the disbursed loan amount, interest rate, and tenure. Generally, lenders charge pre-EMI (interest only on the disbursed amount) during the construction phase. Full EMI starts after possession or once the entire loan is disbursed.

Can I switch from pre-EMI to full EMI before possession?

Yes, most lenders allow switching from pre-EMI to full EMI before possession. This helps to lower the overall interest you are liable to pay, as principal repayment starts earlier. However, the monthly outflow increases. You should confirm the terms and conditions with your lender before switching.

What happens if there is a delay in construction?

If there is a delay in construction, borrowers may have to continue paying pre-EMI for a longer period, increasing total interest cost. Some lenders offer relief measures, while you can seek compensation from the builder as per the agreement and applicable real estate laws.

How to claim tax benefits during the construction period?

During construction, tax benefits on interest paid cannot be claimed immediately. It is treated as pre-construction interest and can be claimed under Section 24(b) in five equal installments after possession. Principal repayment benefits under Section 80C are also available only after possession.

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