Home loan for an under-construction flat: how it works

Why does the bank not pay the full loan at once?

Regulators want the money to follow the building. RBI advised banks in 2013 to link disbursal to construction stages and not to pay upfront on incomplete projects. In November 2025, the National Housing Bank told housing finance companies to keep disbursal strictly tied to stages. This protects you, because less of your borrowed money sits with a project that has not been built.

What happens from sanction to possession?

The loan moves through these stages, broadly in this order.

1. You apply, and the bank sanctions an amount based on your income and the property.
2. The bank checks the project, and you sign the agreement for sale.
3. You pay your own share first, as the payment plan requires.
4. The developer issues a demand as each stage is reached.
5. The bank checks progress, and releases that tranche to the developer.
6. You pay pre-EMI on the total released so far.
7. After the final release, your full EMI starts.

Check whether your project is already approved by your lender. It saves time, though it is not a substitute for your own checks, starting with verifying the RERA record.

How much does pre-EMI come to?

Pre-EMI is interest alone, on the released amount. Here is a hypothetical example with round numbers, using an assumed 9% rate purely to keep the sum simple. It is not a rate quote.

The pre-EMI rises as each tranche goes out, and it does not reduce your principal. If you are also paying rent, that is two housing bills at once. So work out your cash flow for the worst month, not the first month, and allow for delay.

How much of the price can you borrow?

Expect to fund part of the price yourself. Published summaries of RBI’s limits put the maximum at 90% of property value for loans up to ₹30 Lakh, 80% for loans above that up to ₹75 Lakh, and 75% above ₹75 Lakh. Lenders can offer less, so confirm with yours. Stamp duty and registration generally do not count in the property cost for this limit. Our full cost breakdown for a flat shows how much cash that leaves you needing.

What is a subvention plan, and what is the risk?

Under a subvention plan, the builder pays your pre-EMI for a set period. It looks like free money, but check the terms. Reporting on these schemes notes that the buyer stays liable to the lender if the builder stops paying, and the National Housing Bank told housing finance companies in 2019 to stop financing them. Some banks are not bound by that circular. If you are offered one, read the tripartite agreement and ask what happens to your EMI if the project slips.

What should you ask a lender before you commit?

• Will you pay pre-EMI, or start full EMI from the first release?
• Is the rate floating, and what is it linked to?
• What fees apply, and are they charged on the sanction or the release?
• How is a delay in the project handled?
• Can you prepay during construction, and on what terms?

Stage-based payment works best when you can see the stages. When comparing Lucknow projects on offer, match each demand to what you see on site and to the progress report. If you are still choosing a location, our Shaheed Path guide and Sushant Golf City guide list what to check.