Home Loans for Ready-to-Move vs Under-Construction Properties

Buying a home is a significant milestone for most Indians, both emotionally and financially. With property prices rising steadily and real estate becoming increasingly complex, choosing the right kind of property is just as important as securing a good home loan. One of the first decisions you will face is whether to invest in a ready-to-move-in home or an under-construction property.

Both options have their pros and cons, and when combined with the intricacies of home loans, the decision can be overwhelming. This blog will help you understand how home loans differ for these two property types, and what factors you should consider before making your final choice.

The Basics

1. Ready-to-Move-In Homes

These homes are fully constructed and available for immediate possession. Homebuyers can physically inspect the apartment or house before purchase, making the transaction more transparent.

Also Read: Ready to Move into a New Home? A Home Loan with ‘Design Your EMI’ Feature is All You Need

2. Under-Construction Properties

These are properties that are still being developed. Buyers book them at various stages of construction, sometimes even before the foundation is laid. They often come with a longer waiting period but are usually cheaper than ready-to-move-in properties

Also Read: Buying Under-construction Property? How Godrej Capital's Design Your EMI (DEMI) Can Help You

Key Differences in Home Loan Processes

1. Loan Disbursement

• Ready-to-move-in house: Financial services such as NBFCs disburse the entire loan amount in one go once all documentation is complete, and the agreement is signed. Since the property is ready, these service providers assess it quickly for value and legal clearance.
• Under Construction property: The disbursement happens in stages, based on construction progress. The entire loan is not released upfront but follows a construction-linked plan, ensuring that funds are released in tranches after verification of progress. This means that you might start paying EMIs even before the home is ready for occupation. In many cases, you may need to pay pre-EMIs, which are interest-only payments on the amount disbursed so far.

2. Interest Rates and EMIs

Generally, the interest rate remains the same whether the property is ready-to-move-in or under construction, depending on your credit profile and lender’s policy. However, the EMI outgo can vary.

• Ready-to-move-in house: Full EMI starts immediately since the entire loan is disbursed. Many buyers prefer RTMI properties if they are already paying rent elsewhere, to avoid dual burden.
• Under Construction property: Pre-EMI payments begin after stage-wise disbursement. Full EMI starts only after the entire amount is disbursed or possession is taken.

3. Tax Benefits

One of the most important factors for Indian homebuyers is income tax benefits under Section 80C and Section 24(b).

• Ready-to-move-in house: Tax benefits on principal and interest repayment start immediately after the home loan EMIs begin. If you are looking for immediate tax savings, ready-to-move- in has a clear edge.
• Under Construction property: You can claim the tax benefits only after possession. The pre-EMI interest paid before possession can be claimed in five equal installments after you get possession.

4. Risks Involved

Ready-to-move-in house:

• Low risk of delay
• You get what you see
• Lower legal complications if purchased from a reputed builder or resale

Under construction property:

• Risk of project delays
• Changes in project layout or features
• Delayed possession impacts both loan benefits and usability

5. Property Pricing

• Under construction properties are typically cheaper than ready-to-move-in units in the same location and category.
• Builders offer attractive launch prices, discounts, and flexible payment schemes to attract buyers early in the construction phase.
• Ready-to-move-in properties usually have a higher per-square-foot cost, as they are ready to use and involve fewer uncertainties.

However, the total cost may even out when you factor in rent savings, pre-EMI costs, and tax benefits of ready-to-move-in homes.

6. Resale and Liquidity

• Ready-to-move-in homes are easier to sell or rent out. Since they are ready, they appeal to a larger pool of buyers and investors.
• Under construction homes can be harder to resell until they near completion, and buyers may hesitate due to uncertainties.

Which One Should You Choose?

Choose Ready-to-Move-In if:

• You want immediate possession.
• You are currently living in a rented home and want to avoid dual payments.
• You want to avail income tax benefits immediately.
• You prefer low-risk investment.
• You are unsure about the developer's track record or do not want to deal with construction delays.

Choose Under-Construction if:

• You are planning for the long term and can wait 2–4 years.
• You want to benefit from lower prices and better appreciation potential.
• You trust the builder’s reputation and have verified the RERA registration.
• You are okay with paying pre-EMIs for a while.

Things to Keep in Mind When Taking a Home Loan

1. Compare lenders: Interest rates, processing fees, and customer service vary widely. Use online portals or consult with financial advisors.
2. Check builder credibility: For under construction properties, always verify the developer’s RERA registration, delivery history, and legal clearance.
3. Read the loan agreement carefully: Understand prepayment charges, switching clauses, disbursal schedule, and tax implications.
4. Plan your cash flow: Budget for EMIs, registration charges, maintenance deposits, and interior setup.
5. Insurance cover: Take home loan insurance or term plan to protect your family in case of unforeseen events.

Final thoughts

Both Ready- to- Move in and Under Construction properties have their own set of advantages and challenges when it comes to home loans. The right choice ultimately depends on your financial situation, timeline, and risk appetite. You can also consider using a home loan calculator to plan your financial goals towards your dream home.

If you prioritise certainty, immediate tax benefits, and want to move in quickly, a ready-to-move-in property is the way to go. However, if you are willing to wait a few years and want to take advantage of lower entry prices and long-term appreciation, an under-construction home could be a smarter investment.

Do your research, consult with a home loan expert, and make a well-informed decision to ensure a smoother and more rewarding homeownership journey.

Apply now for a loan.

FAQs

1. Which is better for a home loan: ready-to-move or under-construction property?

A. Both options have pros and cons. A ready-to-move property offers instant possession and tax benefits, while under construction properties usually cost less but come with construction risks and delayed tax deductions. The right choice depends on your personal finances, goals, and timeline.

2. Can I get a tax benefit on a home loan for an under-construction property?

A. Yes, but only after possession. You can claim deductions on principal (Section 80C) and interest (Section 24) only after you take possession. The pre-EMI interest paid during construction can be claimed in 5 equal installments after possession.

3. Is the interest rate different for ready-to-move vs under-construction homes?

A. No, the interest rate usually remains the same, subject to your credit score, income, and bank policies. However, the EMI structure differs: ready-to-move-in homes begin full EMI immediately, while under construction properties may require pre-EMIs during construction.

4. Can I sell an under-construction property before taking possession?

A. Yes, but it depends on the builder’s terms and the stage of construction. Some developers may charge a transfer fee. Also, the new buyer must be eligible for a loan or willing to take over the existing one.

5. What documents do banks need for home loans on under construction properties?

A. In addition to your personal and financial documents, banks will ask for:

• Builder-buyer agreement
• Construction plan approvals
• RERA registration details
• Allotment letter
• Payment schedule from the builder

For Ready-to-move-in homes, they may also request the occupancy certificate (OC) and property tax receipts.

Disclaimer:

The contents of this article are for information purposes only and not a financial advisory. The information is subject to update, revision, and amendment and may change materially.
The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Godrej Capital or its Affiliates to any requirements. Godrej Capital or its Affiliates shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any decisions, financial or otherwise based on the contents and information mentioned. For more information, please visit www.godrejcapital.com