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 labour costs, acquiring 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 instalments. The disbursal depends on the construction progress.
But before you approach a lender, here is all you need to know about the home loan process for an under construction flat.
Housing Loan Process for Under-Construction Property
- 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 fee, 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.
Additional Read: Home Buying In 2021: Is It the Best Time to Buy A New House Now?
- Applying for the loan: Once you have zeroed in on a lender, you can begin with the application process. This step usually includes filling an application form, providing the necessary documents, and paying the processing fee. The paperwork required for under-construction housing loans varies from the regular housing loans.
Here’s the list of home loan for under construction property documents that you need to submit:
- KYC (Know Your Customer) documents to show your income proof
- Khata Certificate and Khata extract
- Letter from builder/architect indicating the progress of construction
- No Objection Certificate (NOC) from the builder on their letterhead
- Sale deed
- 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:
- A true copy of the agreement with the builder
- Original copy of ‘money receipt’ issued by the Sub-Registrar
- Own contribution amount proof
- Acknowledged copy on authority letter, addressed by the applicant to the Sub-Registrar
- Copy of the authority letter acknowledged by the builder
Additional Read: Home Loan Tax Benefits for Under Construction Property
- Loan sanction and disbursement: Once your under-construction flat home loan application 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 Under-Construction Property
When you buy a home that’s still under construction, the loan disbursement process 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 under construction home loan process 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 is that 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.
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 instalment 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 home loan disbursement process for under construction property.
Tips for Potential Borrowers
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 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, prepayment penalties, 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.
Conclusion
Now that you know the under-construction housing loan process, a reliable financier is all 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!
FAQs
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.
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.
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.
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.
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.
You can claim tax benefits on a home loan for an under-construction property, but only after the construction is completed.
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.
28 April 2025
7 mins read
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