It is easy to understand why the type of property can affect your home loan requirements, as the property itself serves as collateral. What is discussed less often is that purchasing the same type of property for a different purpose can also make a difference.
The impact is not limited to loan eligibility but extends to the loan product, documentation requirements, disbursement process, and property verification process as well.
To help you prepare better before you apply for home loan, let’s explore how property type and purchase purpose can influence home loan requirements.
How Different Property Types Affect Your Home Loan
Ready-to-Move Property
A ready-to-move property usually has the simplest home loan process. Since construction is complete, lenders can complete the legal and technical verification before releasing the loan amount. Some properties may also be part of the lender’s approved projects, which can make the process quicker. In most cases, the loan is disbursed in a single instalment and EMIs generally begin after the loan is fully disbursed.
Under-Construction / Self-Construction Property
Here, since the construction is still in progress, lenders usually disburse the loan in stages based on the actual progress of construction, which may not always align with the builder’s payment schedule. Before approving the loan, lenders also verify the project’s legal approvals and construction status.
In most cases, you need to pay Pre-EMI until the loan is fully disbursed. During this period, your repayment goes only towards the interest on the amount disbursed, instead of (principal + interest). Once the loan is fully disbursed, regular EMIs usually begin. Some lenders may also offer the option to start full EMIs earlier.
Buying a Plot and Constructing a House
If you are buying a residential plot and planning to construct a house on it, you may need a (Plot + Construction Loan), also known as a Composite Loan. Before approving the loan, lenders usually verify the plot ownership, layout approvals, land records, and other legal documents. Once the required checks are completed, the loan amount for purchasing the plot is usually released first.
The construction amount is then released either in stages based on the progress of construction or at once, depending on the loan agreement. Some lenders may also require you to begin or complete the construction within a specified timeline after purchasing the plot, depending on their loan policy.
Resale Property
The main difference here is the additional legal and technical verification. Since the property has already been owned and used, lenders verify the ownership history, title documents, age, condition, market value, and other legal records before approving the loan. These factors may also influence the loan amount and other loan terms. Once the required checks are completed, the loan is generally disbursed at once or as per the agreed loan terms.
Using a housing loan calculator with EMI will give you the idea of how the approved loan amount, interest rate, and selected loan tenure affect your monthly EMI, total interest payable, and total repayment amount.
How the Purpose of Purchase Affects Your Home Loan
Self-Occupied Property
For a self-occupied property, you generally apply for a regular home loan. Lenders assess your financial profile, including your income, repayment capacity, and credit history, along with the property’s legal and technical details before approving the loan. If you opt for the old tax regime and meet the applicable conditions, you may also be eligible to claim tax benefits under Sections 80C and 24(b) of the Income-tax Act, 1961.
Investment / Let-Out Property
If you are buying the property to rent it out, some loan terms may vary depending on the lender’s policy. For example, you may be asked to make a higher down payment or meet other lending requirements. The main difference, however, is the tax treatment.
- Generally, no deduction cap on home loan interest under Section 24(b) (old tax regime).
- Availability of set-off of eligible house property loss against other income (up to the prescribed limit).
- Carry forward of the remaining eligible house property loss, subject to the applicable tax rules.
Note: Tax rules are subject to change. Please verify the latest applicable tax provisions before claiming any deductions or tax benefits.
Additional Property (May Be Deemed to Be Let Out)
If you buy an additional residential property, it may be treated as self-occupied or deemed to be let out under the applicable income tax rules, depending on your circumstances. This can affect the tax benefits available on your home loan.
Final Thoughts
That’s how the intended use of a property can influence home loan requirements. The same property may involve different loan terms, documentation, disbursement processes, and tax implications depending on whether you plan to live in it, rent it out, or purchase it as an additional property.
