Buying an under-construction property with a home loan? Key things to check before you sign the loan agreement

This is because home loans for under-construction properties are typically disbursed in stages linked to construction progress.

Before signing the loan agreement, it’s not enough to compare interest rates alone but also other factors. 

Here’s what every homebuyer should review before taking a home loan for an under-construction property.

Things to check before taking a home loan to buy an under-construction property

According to Santosh Agarwal, CEO, Paisabazaar, below are the essential checks before you sign the loan agreement for buying an under-construction property.

For under-construction properties, the quality of the project is as important as the home loan itself. So, look beyond launch discounts and promotional offers, and instead evaluate the developer’s delivery track record, Real Estate Regulatory Authority (RERA) committed possession timeline, regulatory approvals, and overall credibility. Equally important is assessing the total cost of ownership.

Also factor in the possibility of paying rent alongside pre-EMI interests or EMIs during construction, as repayment obligations continue even if possession is delayed. While RERA provides remedies in eligible cases, it is imperative to do careful due diligence for an under-construction property.

Reassess your decision in case the builder has made repeated revisions to possession timelines, changes the project plan or specifications frequently, has slow construction progress, delays taking regulatory approvals, or is facing litigation.

Before opting for the loan, you should calculate the total acquisition cost of the property, analyse loan eligibility and affordability, check availability of down payment, evaluate whether you can service both the rent and EMI simultaneously, and most importantly, the exit strategy in case possession is delayed significantly. 

In case of delayed RERA-approved projects, buyers, however,  may seek remedies under applicable state RERA provisions such as seeking interest, compensation, or refund in case the delay amounts to a breach in the agreed timeline. 

How to spot a risky under-construction project?

Repeated construction delays, frequent revisions to possession timelines, and a poor track record of project delivery are some of the clearest warning signs, according to Adhil Shetty, CEO, BankBazaar.   

Buyers should also monitor the project’s RERA disclosures to ensure construction milestones are being met. 

“If the project is marketed with a subvention or “No EMI till possession” scheme, understand the arrangement carefully, including who remains responsible for servicing the loan if the builder fails to meet its commitments,” added Shetty.  

These are not necessarily signs of a weak project, but they warrant closer scrutiny before committing your savings.

Home loan disbursed but possession delayed? Know your options

A builder’s delay does not change your repayment obligation to the bank. Interest or EMI continues on the amount already disbursed, irrespective of whether possession has been handed over. 

“This can result in borrowers simultaneously paying rent and servicing a home loan. Under the Real Estate (Regulation and Development) Act, 2016, buyers affected by delays may either withdraw from the project and seek a refund with applicable interest and compensation, or continue with the project and claim interest for the period of delay,” according to Shetty.

Understanding these rights before investing can help borrowers make informed decisions if a project runs behind schedule.

How to avoid costly mistakes when buying an under-construction home?

Start by verifying that the project is registered with the relevant State RERA authority and review details such as the completion timeline, statutory approvals and construction progress. 

Equally important is the developer’s track record of completing earlier projects on time and the financial strength of the project. 

Before signing, understand the payment plan, the loan disbursement schedule and any conditions attached to promotional offers. A thorough due diligence exercise is often more valuable than choosing a project based solely on price or marketing incentives.

Pay close attention to the loan disbursement schedule and ensure it is linked to construction milestones. Understand when the loan transitions from pre-EMI to regular EMI and how repayments will change as additional amounts are disbursed. Also review the applicable interest rate, reset clauses, charges for delayed payments and the lender’s policy on part-prepayments or foreclosure, wherever applicable. 

From loans sanctioned or renewed on or after January 1, 2026, the RBI has removed prepayment and foreclosure charges on floating-rate loans taken by individuals, so borrowers should ensure the agreement reflects the prevailing regulatory framework.

Many first-time buyers focus only on the initial pre-EMI without planning for the higher regular EMI that begins after the full loan is disbursed. 

Another commonly overlooked aspect is the tax treatment of pre-construction interest. Under Section 24(b) of the Income-tax Act, this interest can generally be claimed only after construction is completed and possession is obtained, spread over five equal installments, subject to the applicable limits. 

Hence, understanding both the repayment timeline and the tax treatment can help borrowers plan their finances more effectively.

Conclusion

Before booking an under-construction property, verify the project’s RERA registration, statutory approvals, and expected completion timeline. Ask your lender for a stage-wise loan disbursement schedule and assess whether you can comfortably manage both the pre-EMI during construction and the regular EMI thereafter. 

It is also prudent to build a financial buffer in case possession is delayed, and you have to pay rent alongside your home loan. Finally, understand the tax treatment of pre-construction interest so your cash flow planning does not depend on deductions that become available only after possession.

Disclaimer: This article is for informational purposes only and should not be construed as investment, financial, tax, or legal advice. Any illustrations, examples, or return projections used in this article are for explanatory purposes only and do not guarantee actual investment outcomes. The views and opinions expressed by experts quoted in this article are their own and should not be considered investment recommendations. Readers should consult a qualified professional before making any financial decisions. 

Every financial journey has a turning point. What’s yours?

Financial Express is launching a new series highlighting real experiences with money, investments, and the taxman. Did a sudden tax rule catch you off guard? Did a piece of financial advice change your life? Your story could provide invaluable, practical lessons for thousands of fellow taxpayers. Share your experience with us. We respect your privacy: no stories will be featured without a direct conversation and your full consent. Thank you.