Home loan for under construction property has witnessed a gain in traction amidst the new scheme.
It was after a lot of searches that 40-year-old Malhotra zeroed in on an under-construction apartment to buy. Before applying for a home loan, he factored in cost, location, accessibility, quality, and even the builder's reputation. The builder, who was promising the moon and was all of the sugary words then started setting terms for payment. It is like 20 per cent in advance, 70 per cent for slabs and 10 per cent after the sale deed registration. With a decent CIBIL (Credit information bureau India ltd.) score, Malhotra didn't face any hurdles in getting a home loan too.
Like in most cases, Malhotra's builder also constructed all the slabs and raised a Demand Note for 70 per cent of the cost of the apartment. And Malhotra by then had paid 90 per cent of the flat's cost. Yes, within three months into the signing of the sale agreement, the builder has got 90 per cent of the flat's cost. But the works are far from getting over. Brickwork, woodwork, fittings, paintings...the builder is quoting some 10 to 12 months, "if there are no other issues".
As per Malhotra's agreement with the builder, the total cost he will be paid, apart from the flat, includes generator, lift, common areas, electricity meter, other promised amenities, registration, occupancy certificate etc. The builder, however, raised a Demand Note for the remaining 10 per cent once the brickwork of the flat was over. He also wants the sale deed registration done without completion of all other works except your flat. Malhotra is now a worried man. He has no surety whether the builder will keep his promises or not though he has to start repaying his home loan.
It is keeping in mind thousands of Malhotras who struggle to deal with such builders that some credible names in the field of home loan providers, including the State Bank of India (SBI) and the Life Insurance Corporation (LIC) have come up with tailormade home loan products for under-construction houses. For instance, under the State Bank of India's ‘Residential Builder Finance with Buyer Guarantee’ (RBFBG) scheme, the bank will refund the principal loan amount to the borrower, if a developer fails to complete the project. Similarly, LIC Housing Finance (LICHF) has launched ‘Pay When You Stay’ scheme, which gives the customer the flexibility of not paying the principal portion of the home loan up to four years when he goes for an under-construction house. Such home loans are sure to go a long way in boosting the confidence of the buyers to go for under-construction houses. However, there are some conditions that buyers need to fulfil for availing these home loans.
RBFPG scheme from SBI
With home loan buyers shying away from under-construction structures — the preference being for resale properties or ready-to-move-in houses and flats — the SBI's RBFPG scheme will motivate home loan goers to go for houses and flats under construction. The scheme is also available for those under-construction properties where SBI has funded the entire project. It implies that these projects are those in which the bank has assessed the developer for all financial risks involved in the bank's satisfaction, and SBI is the sole lender.
SBI will initiate a refund if the developer is not able to finish the works on the project by the given date of possession. The bank will grant a maximum of six months' grace period — from the date of possession — to the developer to complete the project. If the builder still fails on his agreement, the borrower would get back the principal amount paid as part of the EMI. There will be no additional cost to the buyer under this home loan scheme, which will work with the existing SBI home loan products.
When you go for a flat or an apartment which is under construction, the builder is a direct beneficiary of the home loan amount sanctioned by the bank. The customer or the actual buyer need not pay any EMI until the house is ready for possession. The builder or the developer of the project is liable to pay interest on the principal home loan amount until the customer receives the possession of the property. This makes it highly convenient for the customer as they need not pay inflated EMIs on the home loan while they are already paying rentals. The agreement between the bank or the lender and the builder is a separate legal procedure wherein certain conditions are brought in. Usually, the bank decides to disburse the amount as per the progress on the construction works on the property. Thus the RBFPG home loan makes your investment quite safe and easy for the pocket.
The RBFPG home loan scheme, however, is not available across all the projects and across all the country. As of now, it is available in cities including Mumbai Metropolitan Region (MMR), National Capital Region (NCR), Hyderabad, Bengaluru, Pune, Kolkata, and Chennai.
LIC's 'Pay when you stay' scheme
When a borrower takes a home loan for an under-construction property, normally the home loan provider gives a moratorium of up to three years during which time the borrower only needs to pay the interest component of the loan. A three-year moratorium takes into consideration the fact that during this time the construction of the house is complete and thereafter the home loan borrower can pay interest as well as the principal through equated monthly instalments (EMI). But if the construction is delayed beyond the moratorium period, the home loan borrower ends up paying principal as well as interest.LIC's scheme extends this moratorium by allowing borrowers a four-year period, that is 48 months. During this time the borrowers need not have to pay back the principal component. They will, however, have to pay the interest charged, which will be calculated on the basis of the amount the lender has disbursed to the developer. Once you receive the possession, the regular equated monthly instalment (EMI) will start, where the lender will charge the principal amount as well as interest. The product best works for purchasers who are living in rented houses and are buying properties in the lender’s approved list of projects. While the moratorium period will reduce their financial burden, the minimum loan one can avail under this scheme is ₹20 lakh. The maximum can go up to ₹2 crore.
Subscribe to Moneycontrol Pro's Annual plan for Rs 399/- for the first year. Use coupon PRO2020 (Available on Web & Android only).