Difference Between Under Construction Vs Ready-to-Move-In Property Loans

November 21, 2024

Apply Now

Are you considering buying a property in India but confused about whether to opt for an under construction vs ready-to-move-in property loans? You're not alone. Many individuals face this dilemma when purchasing a home. Each option has its advantages and considerations that can impact your financial situation and decision-making process. In this article, we'll understand key differences between under construction and ready-to-move-in property loans, helping you make the ideal choice.

Understanding Under Construction Property Loans

When you opt for an under construction property loan, you are essentially purchasing a property that is still being built. Here are some important points to consider:

Stages of Payment
When buying an under construction property, you make payments in stages as the construction progresses. These payments are typically linked to milestones such as excavation, foundation, completion of each floor, etc.
Delayed Possession
One of the main challenges with under construction properties is the possibility of project delays. It's essential to factor in potential delays while planning your finances and consider additional expenses that might arise due to extended EMIs or rent payments.
Interest During Construction
During the construction phase, you pay only interest on the disbursed loan amount rather than principal + interest. This is known as pre-EMI and helps ease the financial burden until possession.
Example: Let's say Harish wants to purchase an under construction property worth ₹80 lakh and has decided that he will avail a loan of ₹60 lakh at an interest rate of 8.50 per cent for a period of 20 years. The time for completion of the construction is estimated to be 2 years. During this period, Harish will pay pre-EMI at an interest rate of 8.50% on the disbursed loan amount of ₹60 lakhs.
Sample Calculation:
Pre-EMI = (Loan Amount * Interest Rate)/12
= (60,00,000 * 8.50%)/12
= ₹42,500
Tax Benefits
Under construction properties offer tax benefits only after possession. On getting possession, you can avail deductions on the principal repayment and interest paid under Section 80C and Section 24(b) respectively.

Exploring Ready-to-Move-In Property Loans

Ready-to-move-in property loans refer to properties that are already completed and ready for immediate occupancy. Here's what you need to know:

Immediate Possession
One of the major advantages of ready-to-move-in properties is that you can move in as soon as the loan is disbursed, enabling you to save on rent and other expenses associated with temporary accommodation.
Certainty of Costs
With a ready-to-move-in property, you have a clear understanding of the total cost upfront. This helps in better financial planning and eliminates uncertainties related to project delays or additional expenses.
Higher Purchase Price
Ready-to-move-in properties generally come with a higher purchase price compared to under construction properties due to factors such as location, demand, and amenities.
Immediate Tax Benefits
One of the advantages of ready-to-move-in properties is that you can start availing tax benefits on home loans immediately after possession. You can claim deductions on both the principal repayment and interest paid from the first year itself.

Comparing Under Construction Vs Ready-to-Move-In Property Loans

Now that we've discussed the key aspects of both under construction and ready-to-move-in property loans, let's compare them side by side:

Aspect	Under Construction Property Loans	Ready-to-Move-In Property Loans
Loan repayment	Interest on the disbursed loan amount.	Interest+principal. In short, EMI on the full loan amount.
Financial Planning	Requires careful financial planning due to potential delays.	Easier financial planning as costs are known upfront.
Tax Benefits on home loans	Available only after possession.	Available immediately after possession.
Price	Generally lower compared to ready-to-move-in properties due to the risk factor involved in under construction projects.	Higher as you pay for the convenience and immediate possession.
Additional Expenses	Potential additional expenses such as rent, extended EMIs during construction period.	No additional expenses associated with temporary accommodation.

Loan Types To Consider For Under Construction vs Ready-to-move-in Property Loans

When it comes to both under construction and ready-to-move-in property loans, you have different options to choose from. Some common loan types include:

Home Loan: The most common type of loan for purchasing residential properties.
Loan Against Property: A loan offered against the mortgage of an existing property, which can be used for various purposes.
Construction Loan: Specifically designed for financing the construction of a property. Before finalising any property loan, it is best to do a property loan comparison.

Final Thoughts

In summary, understanding the differences between under construction vs ready-to-move-in property loans is crucial in making an informed decision that aligns with your financial goals and priorities. Consider factors such as possession, financial planning, tax benefits, price, and additional expenses before choosing the right option for you.

If you're ready to explore home loan types further or need assistance in selecting the most suitable loan type, consider visiting Ujjivan SFB's website. Their team of experts can guide you through the loan application process and help you make a well-informed decision based on your specific needs and circumstances.

Apply Now

FAQs

1. Where can I undertake property loan comparison?

There are many online resources where you can easily make a property loan comparison. You can also talk to your banker to get the best deal possible.

2. What are the key differences between under construction vs ready-to-move-in property loans?

Under construction property loans involve purchasing a property that is still being built, while ready-to-move-in property loans refer to properties that are already completed. The key differences include possession timing, financial planning considerations, tax benefits availability, price variations, and potential additional expenses.

3. Which loan type should I choose if I need immediate possession?

If immediate possession is your priority, opting for a ready-to-move-in property loan would be the best choice for you.

4. Are tax benefits available for under construction property loans?

Tax benefits for under construction property loans are available only after possession. Once you receive possession, you can claim deductions on the principal repayment and interest paid.

5. Can I get a construction loan for an under construction property?

Yes, construction loans are specifically designed to finance the construction of a property. They can be availed for under construction projects.

6. What are the main advantages of ready-to-move-in property loans?

Ready-to-move-in property loans offer immediate possession, certainty of costs, immediate tax benefits, and eliminate potential additional expenses associated with temporary accommodation during the construction phase.

7. What are the various loan types we can consider?

The various loan types we can consider are home loans, loans against property and loan for construction.

8. Why is it important to make property loan comparison?

It is important to make a property loan comparison to get the most economical home loans that are available.

9. What are the common documents required for under construction and ready-to-move-in property loan applications?

The documents required for both types of property loans include income proof, identity proof, address proof, property documents, and bank statements. The exact list may vary depending on the lender's requirements.

Disclaimer