Builder default doesn’t pause your home loan: Why paying EMIs still matter

Missed EMIs can damage credit long after construction stalls.

• Homebuyers must repay loans even if builder absconds or project stalls.
• Missed EMIs harm credit score, making future loans difficult to obtain
• Clearing overdue EMIs is essential to restore creditworthiness over time

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A stalled housing project and an absconding builder can leave homebuyers financially stranded. But even in such cases, banks continue to hold borrowers responsible for repaying their home loans and missed EMIs can have lasting consequences on creditworthiness.

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I have taken a home loan from a bank and paid pre-EMIs for two years. The builder has now absconded, leaving the building half-constructed. The bank had already disbursed nearly 90 percent of the loan amount without inspecting the property.

I got married last year, and since then I have been unable to pay the EMIs after the bank converted the pre-EMI into a regular EMI. As a result, I am now unable to get a home loan. Please advise what can be done.

Expert's Advice: While a bank’s loan approval is prima facie a good indicator of the legal title of a property, it is in the buyer’s own interest to carry out independent due diligence on both the property and the builder before purchasing. Ultimately, it is the buyer who is responsible for verifying the property title, construction timelines, and the risks of delay.

Your liability to service the home loan is independent of your inability to take possession of the property due to a legal dispute or the builder’s default. Banks do not take responsibility for delays or defaults by builders for any reason.

You should have continued paying the pre-EMI or EMI to maintain a healthy credit score. By not paying EMIs for the past year, your credit history has been adversely affected. A poor credit history can have long-term consequences on your ability to borrow, whether through a credit card or any other loan. This damaged credit record is the primary reason you are currently unable to obtain a new home loan.

Unless you clear the overdue EMIs on your existing loan, it will be difficult to secure fresh credit from any lender, as defaults are reported to credit information bureaus. Even after settling the dues, your credit score will take time to improve.

Disclaimer: The views expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.

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