If you are in the market for buying a property, you may come across two types of loans: land loans and home loans. It is important to note that even though there are some differences between land loans and home loans, in most cases, the treatment and requirements for both types of loans are similar. The process, due diligence, EMI options, documentation, and other factors remain the same for both land loans and home loans. In this blog, we will explore how a land loan is different from a home loan and help you understand which loan option is suitable for your needs.
Things to Consider When Opting for a Loan
Property Location and Type:
When it comes to land loans, they are usually available only for the purchase of residential plots. However, if you opt for a home loan, you can finance properties that are already constructed, under construction, or likely to undergo construction soon. It’s important to note that land loans are not typically available for agricultural land or properties located in villages. On the other hand, once you purchase a plot of land using a land loan, you can apply for a home loan to construct a house on that land. Interested in plots? Explore Dwarka Kingdom- farmhouse plots for sale near Pune, Mumbai.
Loan to Value (LTV) Ratio:
The Loan to Value (LTV) ratio is the maximum amount of loan you can get against a property. For home loans, you can avail up to 80-85% funding (90% in some cases) based on the property value. However, for land loans, the maximum LTV is usually limited to 70% of the plot value. This means that if you are considering buying a plot for personal use or as an investment, you will have to contribute a minimum of 30% of the funds from your pocket.
Tax Benefits:
One significant difference between land loans and home loans is the tax benefits. While home loans provide tax deductions for both interest and principal payments, land loans do not offer any such benefit. Tax deductions are only available when you construct a house on the purchased plot, and the deduction is applicable only for the loan amount taken against construction, and after the completion of the construction activity.
Land Loan and NRIs:
Non-resident Indians (NRIs) who are interested in purchasing land through a land loan may face some challenges. Most banks do not offer land loans to NRIs, and if offered, they may come with higher interest rates. Therefore, if you are an NRI looking to buy land in India, a thorough search for suitable loan options is necessary.
Loan Tenure:
The loan tenure for land loans is generally shorter compared to home loans. While home loans can extend up to 30 years, land loans typically have a maximum tenure of 15 years. However, some NBFCs (Non-Banking Financial Companies) may offer 20-year tenure for land loans.
Maximum Loan Amount:
Most banks impose a maximum upper limit on land loans. Some banks have set maximum loan amounts of Rs 1 crore and Rs 50 lakh, respectively, for the purchase of land. It is essential to check with your bank regarding the maximum loan amount before finalising your lender, as this can significantly impact your financial plans if you require a substantial loan for real estate investment.
Loans for Land Purchase and House Construction:
If you are considering a refinance option for your land purchase, with plans to start construction soon, certain prerequisites apply. Most banks require construction to begin on the acquired land within a specified period. For instance, some banks offer land loans when the borrower promises to construct the house within 2 years from the date of allotment.
The Bottom Line
In conclusion, understanding the differences between land loans and home loans is vital when considering purchasing property. While home loans are suitable for properties that are already constructed or will be constructed soon, land loans cater specifically to residential plots. Depending on your needs and financial situation, you can choose the loan option that suits you best.
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