Home Loan Disbursement Stages for an Under-Construction Home
The home loan disbursement process for under-construction property releases funds slab by slab as your home is built. Learn how staged disbursement works and plan your purchase.
Buying an under-construction property in Mumbai means that you are not only dealing with a home loan but also coming to know about the home loan disbursement process for under-construction property. With completed homes, the lender delivers the entire loan amount at once. Here, funds are delivered in stages, based on building milestones and the builder’s payment plan.
A quick summary:
- Disbursement of home loans for under-construction properties is done in tranches as per verifiable construction milestones and not in a lump sum.
- Each loan release is initiated by the developer’s demand letter and verified by the lender.
- A developer-funded Pre-EMI plan can ease cash-flow pressures by paying for the applicable Pre-EMI interest for the time agreed to.
- The disbursement schedule is quite important for the buyers to plan their finances right from the booking to possession.
What Does Home Loan Disbursement Mean for an Under-Construction Home?
Buying a home under construction doesn’t mean that the entire home loan will be disbursed in one go. Financial institutions and housing finance companies disburse the sanctioned loan amount in stages, subject to the approved loan amount and the borrower's eligibility.
The home loan disbursement process for under-construction property has the following stages:
- Approval of the loan before disbursement.
- Payments in tranches.
- Payment against construction milestones.
- Release of funds to the developer against each approved demand.
How Does Staged Disbursement Work Against Construction Milestones?
Rather than disbursing the entire sum at the beginning, the lender disburses the loan on reaching each milestone. The bank will carry out a site visit or an engineer’s certificate to check the milestone before any release.
- Plinth stage: Disbursement after completion of the foundation and plinth stage.
- Slab casting: Payments after each structural slab completion.
- Bricks and internal construction: Once the construction is completed, payment will be settled.
- Finishing works: Additional payments are made after completion of finishing work.
- Final stage: Final payment to get the ownership of the property.
The National Housing Bank advises lenders to link housing loan disbursements to verified stages of construction rather than making upfront releases.
What Triggers Each Disbursement and What Is a Demand Letter?
When a construction milestone is reached, a demand letter is sent by the developer and the loan is advanced. The buyer brings the letter to the lender to confirm and the lender pays out the sum.
- Once a construction milestone is reached, the developer sends a demand letter.
- The buyer forwards the demand letter and other documentation to the lender.
- The lender checks the request and may visit the location or get certification from an engineer.
- Once the disbursement request is approved, the funds are transferred to the developer’s account.
Read Also: Impact of RERA on Indian Real Estate
What Are Slab-Wise Disbursement Stages in a Mumbai High-Rise?
In a Mumbai high-rise, construction is done floor by floor; hence, the loan is disbursed in several phases rather than a few major ones. This way, loan disbursements will be in tune with the MahaRERA construction schedule.
- Booking and plinth stage: First tranche shall be released on completion of the booking and plinth stage.
- Lower floor slab casting: The second tranche is released after the casting of early structural slabs.
- Mid-tower construction: Future disbursements rely on milestones that will be achieved as the construction of the tower progresses.
- Upper floors and structural completion: Loan disbursements will continue till full height of the structure is achieved.
- Finish and possession: The final tranche is disbursed once the internal and external finishing is done and approved by the financier.
For instance, Rustomjee Privé is an ongoing residential tower in BKC Annexe with 3 BHK flats having only 2 units per floor. The construction of this tower is vertical in nature, which means that loan disbursal would be based on many construction milestones till the completion of the project.
How Do Pre-EMI and Full EMI Work During Disbursement?
When a home loan for an under-construction property is disbursed in stages, interest is charged only on the amount released by the lender. This is known as Pre-EMI. Once the entire sanctioned loan amount has been disbursed, regular EMI payments, covering both principal and interest, begin as per the loan agreement.
How Does a Developer-Funded CLP Pre-EMI Payment Plan Change the Disbursement Picture?
A developer-funded CLP Pre-EMI payment plan can reduce cash-flow pressure during construction. As the loan is disbursed in stages, the developer pays the applicable Pre-EMI interest for the agreed period, allowing eligible buyers to avoid EMIs until possession, while GST, stamp duty and registration charges remain payable by the buyer.
- The loan is disbursed only against the agreement value.
- Interest on disbursed amounts is paid by the developer during the eligible CLP Pre-EMI period.
- Buyers pay no EMI during this agreed window.
- GST, stamp duty and registration charges are paid separately by the buyer.
- The facility is offered by participating lenders on the condition that you meet certain criteria.
Read Also: Understanding the 20:80 Payment Plan: A Smart Way to Own Your Dream Home
When Does Repayment Begin and How Is Possession Linked?
The instalment payment schedule is set based on the sanction of the housing loan as per the provisions of the tripartite agreement among the buyer, financier and the developer.
After the CLP Pre-EMI tenure, the borrower will start the process of paying instalments of EMI or Pre-EMI as mentioned in the housing loan agreement. The financier provides the repayment schedule beforehand, and generally, the interest support tenure cannot be extended beyond that.
As far as the possession of an under-construction project such as Rustomjee Stella in Bandra East is concerned, it is based on the completion of the construction and statutory clearances and not on the full repayment of the housing loan.
What Should Buyers Check Before Choosing a Staged Disbursement Loan?
Before choosing a staged disbursement loan, clarify the following:
- Confirm the registration of the property under MahaRERA with possession timeline details.
- Make sure that you are eligible for the loan according to the lender’s assessment.
- Understand the concept of the floating rate loan and the effect of the Repo-Linked Lending Rate on future EMIs.
- Make sure that individual borrowers will be able to prepay without foreclosure charges on the floating-rate home loans.
- Explain the repayment terms and qualifying criteria for NRIs.
- State the disbursement strategy, terms of the loan, and tax advantages as per section 80C & 24(b).
The Reserve Bank of India also explains key aspects of home loan eligibility, repayment and borrower responsibilities.
Frequently Asked Questions
The loan is disbursed in stages based on milestones of construction after the lender verifies the demand of the developer.
With a regular home loan, you pay Pre-EMI on the disbursed amount. Under a CLP Pre-EMI plan, the developer pays the applicable interest during the agreed period.
The loan does not cover GST, stamp duty, registration charges and other applicable fees. These are often paid individually by the buyer.
Yes, staged disbursement and developer-funded CLP pre-EMI plan are available for NRI buyers, subject to lender’s eligibility and project requirements.
