Buying your dream real estate property is not always a straightforward process. Buyers who choose to avail loans while living on a rented property are always under the tension of the project not being completed on time.

While the government has been working to resolve all such issues to create transparent real estate market; buyers too can keep themselves up to date on what is latest in banking to ensure they are never in troubled waters.

One such facility that a buyer can avail is the Subvention Loan.

A subvention loan is typically oriented towards home buyers taking home loans. A subvention loan has three stakeholders: the builder, the bank, and the buyer. The three involved parties sign an agreement. As per the agreement, the buyer has to pay an initial down payment, while the bank pays the balance amount to the builder just like a normal loan. However, the differing factor is that till the buyer receives possession (or some other condition), the builder has to pay the interest on the buyer’s home loan and the banks release payments as per the construction schedule of the builder.

Why Is A Subvention Loan Needed?

Two Reasons why subvention loan is necessary:

• They reduce the burden for the buyers, especially those who live in rented homes as they don’t have to pay house rent and the EMI.
• Banks are more apprehensive about financing and need more control over the whole process. They aren’t much satiated with the developer’s credentials with time.

Benefits of the Subvention Loans

Some of the benefits of the Subvention Loans are:

• These loans ensure a better delivery rate since banks get to control the sum paid to the developer based on the delivery schedule.
• From a buyer’s point, the subvention loan offers easier access to real estate by alleviating any interest burden till possession.
• The risk of a buyer is limited to the amount paid as per the construction schedule instead of complete loan amount as compared to normal loans.

Drawbacks of the Subvention Loans

Subvention loans have some drawbacks as well, which can be found below:

• Since developers have to pay the interest during construction period, they add the amount within the property cost. This can lead to a buyer paying more than what a developer pays as interest.
• Failure to pay interest by the developer can impact the buyer’s credit score negatively. A damaged credit score may limit the borrowing capacity of the loan seeker till it is recovered.
• If a developer diverts funds midway to another project, it might be troublesome for the buyers.

Final Take

While subvention loans have many benefits, it is important to read all the documents about terms and conditions attached to the loan before signing the papers.

Since RERA has been implemented, a significant number of delusionary schemes that were being used by the developers will stop and that will work to benefit the buyers.

However, buyers should verify the developer’s credibility before investing in subvention loans.

Subvention loans can be beneficial for home buyers, especially the first-time home buyers if the possession is done on time and there are no hidden clauses from the buyers.

ANP HOLDING: http://www.anpholding.com/blog/

ANP Atelier & Associates: http://atelier.co.in/blog/