Land Loan is the loan facility availed for buying a land. Land or plot is generally purchased as an investment or for building a house. So, if you are planning to buy a plot, you need to take a land loan and not a home loan. Home loan is offered only for property which is already constructed or under construction. There are certain basic differences between Land Loan and Home Loan in terms of tax implication, qualification, eligibility and other parameters. In this post, we will look at the land loan and basic difference of land loan vs home loan.
What is Land Loan?
A land loan is also known as a Plot Loan. These types of loans are given to both salaried and self-employed individuals with relevant income proof and good credit score and credit history. The plot loan is given for buying a plot under following conditions.
- Purchasing a plot for direct allotment from the developer for a project or a housing society.
- For buying a plot on resale in a development authority project or a housing society.
- The identified plot is within city limits.
The plot land should be non-agriculture and strictly for residential purpose. The plan should be approved by competent authority.
Also Read – Second Home Loan Tax Implication and Benefit
What is the difference between Land Loan and Home Loan?
The key points of difference between Land Loan and Home Loan are given below.
Lower Loan to Value
Loan to Value is quantum of loan you can get against a property. For home loan maximum permissible loan to value is 80-85%. However, in the case of a land loan, the maximum permissible LTV is 70% of the total plot value. This means if you are planning to purchase a plot, you need to spend 30% amount from your pocket.
Purpose of Loan
Home loans are given for all types of properties irrespective of location. On the other hand, a plot loan is given only for residential plot. You can not avail plot loan for buying an agriculture land.
No Tax Benefits
The land loan is not eligible for any tax benefits. On the other hand, If you take a home loan you can avail tax benefit on the principal amount and interest amount.
Land Loan to NRI
Home loan is offered to NRI. However, it is generally observed that land loan is not offered to NRI or it is offered at a higher interest rate. So, if you are NRI and planning to buy a residential plot by availing loan you need to do extensive research.
The tenure for plot loan is less compared to a home loan. Maximum tenure for these types of loan is 15 years. On the other hand, a home loan is offered up to 20 years.
A home loan can be closed without foreclosure charges. To close plot loan, you need to pay 2-5% foreclosure charges.
Points to consider before taking Land Loan
- The first point of consideration is a readiness to pay margin money which ranges from 30 to 50%.
- The loan to value ratio in the case of land or plot is 70%.
- Plot loan is considered as risky, so interest rate applicable for this loan is higher.
- The tenure for plot loan is 15 years.
- No tax benefits applicable for payment made towards a plot loan.
- Plot loan is given only for residential plot. Loans are not given for agriculture land.
Please carry out proper research and due diligence before selecting a bank for buying plot on loan.