To attract an increasing number of customers in the under construction property segment, the Government of India has decided to decrease GST on such purchases to 5% excluding Input Tax Credit (ITC), lower from the previous rate of 12% including ITC. Individuals can thus benefit from home loans to fund the purchase of residential properties still under construction.
Applicants for home loans should however analyse whether housing loan options are beneficial to their financial situation and their desired property under construction.
What are the benefits of housing loan for under construction properties?
Home loans for under construction properties are can be associated with several significant benefits that are accessible to applicants. Individuals should however seek home loans for an under construction residential property only when the developer has a valid commencement certificate from relevant authorities. Moreover, applicants should acquire properties registered under RERA to be assured of composite approvals from regional municipal corporations, electricity, and water supply departments. Consequently, individuals may refer to the following benefits of home construction loans to decide whether this loan option is suitable for their housing needs –
Select housing finance companies may extend the benefits of a moratorium period of a home loan to individuals opting for a loan to finance the purchase of an under construction property. Individuals only have to pay the interest component of home loan rates, which substantially reduces their financial burden during the period.
Applicants however have to repay the home loan in the form of EMIs including the principal and interest component after receiving the occupancy certificate upon construction of the residential property.
Lower loan amounts
As under construction housing properties are priced around 10%-20% below ready-to-move-in properties, individuals can actively benefit from opting for lower housing loan principal amounts. This suggests that the financial liability on individuals in case of under construction properties is significantly lesser than while purchasing a constructed property.
Individuals thus have the option to manage their repayment schedule as per the lower home loan amount.
The EMI burden on individuals applying for a home loan for under construction residential properties is quite lower due to the reduction in loan amount. Additionally, individuals can benefit from longer tenors on their housing loan and manage their repayment schedule effectively.
Individuals, on the other hand, can also opt for higher EMI amounts to reduce home loan tenor and save lakhs of rupees. It is beneficial and convenient to use an EMI calculator online to have a clear idea about the repayment schedule and plan finances accordingly.
Individuals are eligible to avail tax benefits up to Rs.2 lakh on the principal component of the home loan under Section 24(b) of the Income Tax Act, 1961. Applicants can also opt for tax exemptions up to Rs.1.5 lakh on interest payments as per Section 80C of the same legislature.
These tax benefits are however accessible to individuals only after they have received occupancy certificate from developers. This suggests that tax exemptions are applicable only after a homeowner starts residing in the property that they have financed with a home loan.
Additionally, individuals can opt for home loan apply online to fund the purchase of an under-construction property on the basis of unit size, floor rise, and direction of the apartment.
Housing loans to finance the purchase of under construction properties are a suitable option for potential home-owners who want to reduce the borrowed loan amount along with lower EMIs after occupation of the residential property. Individuals, in addition, can reduce the financial stress caused by long-term financial obligations such as home loans.