As a first time home buyer, you may be under the impression that paying for a home involves only applying for a loan and making the payment to the developer. The truth is that there are various options for you to choose from in terms of payments. Figuring out which payment plan is best for you can go a long way in ensuring your financial stability.
Common payment plans that you can consider before making the decision:
Construction linked payment (subvention) scheme
Under this plan, the bank releases payment to the developer in phases based on the stages of construction completed. This plan is ideal for individuals who are looking to purchase under-construction homes. This ensures that complete payment is not made upfront and is released only in parts as the agreed-upon milestones are reached.
These plans are also referred to as construction-linked payment plans and were brought into effect in 2013 when RBI prohibited the disbursement of loan amounts in one go without linking it to construction activity. Under this scheme, the buyer, developer and bank enter into an agreement. During the subvention period, the developer bears the burden of the pre EMI.
From a buyer’s perspective, this plan is beneficial because it means that he or she can book a property with a relatively small initial payment. The pre EMI is borne by the developer and there is greater security as banks perform due-diligence prior to approving this payment plan.
Things to watch out for:
- Pre EMI defaults – In case the developer defaults on pre EMI payment, the buyer’s CIBIL rating is affected.
- If project is not completed within the subvention period, the pre EMI burden has to be borne by the buyer.
- Since paying pre EMIs is a cost to the developer, he may inflate base price to recover the same. Guard against this move by checking prices of similar projects in the area.
Possession-linked payment plan
This payment plan is straightforward. The down payment is made at the time of booking the apartment and the remaining is paid once the buyer takes possession of the property. It is ideally suited for those looking to purchase completed projects or projects nearing completion.
Down payment plan
The down payment plan involves the buyer paying 20% of the price upfront to the developer. The remaining amount is released by the bank to the developer within 45-60 days. The EMIs commence after the bank has paid the developer.
Time-linked plans
This is a rather outdated and unpopular plan as it benefits only the developer. In this plan, payments are made to the developer at agreed-upon timelines irrespective of whether construction is on schedule or not. This way the developer doesn’t feel the pressure to be accountable to deliver on time.
Developers and banks are constantly updating offers and loan products respectively. It is in your best interests to conduct a thorough research as well as discuss your options with both parties before determining what is best for your financial standing.