Several individuals acquire land parcels either as a pure investment or to build their own homes. If you want to buy a land parcel but do not have the entire amount, you have to option to apply for a loan that may be used to purchase the same. Most people know about home loans and may consider applying for it even when they want to buy a land parcel. However, such types of loans are available only for ready possession and under construction properties. Lenders may also sanction housing loans if the proposed construction is expected to commence soon. If you want to avail of a loan to acquire an empty land parcel, a housing loan is not available. Instead, you will have to apply for plot loans, which allow you to buy vacant property. In most instances, the interest rate, terms and conditions, and the application and sanction procedure for land and housing loans are the same. Nonetheless, there are certain differences between these two types of loan. Here are six such differences:
|Land Loan||Home Loan|
|Location & type||Available only for residential properties located within the corporation or municipal limits||Available for all types of properties located in any area|
|Loan to value (LTV)||Maximum LTV is capped at 70% of the land value If the land parcel is located in a smaller city or town, the LTV may further reduce to between 50% and 60% of the plot value||At Indiabulls Home Loans, we disburse an LTV of up to 85% of the property value|
|Tax benefits||No tax benefits on the principal and interest; however, construction funding availed to build a home is eligible for tax benefits after the completion of the work||The principal and interest on the home loan is eligible for tax benefits under the Income Tax Act, 1961|
|Loan tenure||Maximum tenure is up to 15 years||You may avail loan tenure of up to 30 years with Indiabulls|
|Maximum loan amount||Most lenders levy a maximum cap on the amount you may borrow for the purchase of a vacant plot of land||In most cases, there is no cap on the amount you may borrow and is based on the value of the home and your repayment capability|
|Non-resident Indians (NRIs)||NRIs need to undergo stringent research and if the loan is sanctioned, it is often at a higher rate of interest||Housing loans are offered to NRIs at a competitive rate of interest|
|Rate of interest||The rate of interest on these types of loans is usually a little higher when compared to a housing loan||The interest rate on housing loans may be slightly lower|
Pros and cons of land and home loans
You may be confused about whether availing a housing loan to buy a ready possession home is better or if availing a property loan to build your dream house is better. Here are the pros and cons of both these options:
Housing loans are available to buy a home in any location. However, loans to buy vacant land parcels are subject to certain limitations on the type and location of the properties.
2. Down payment
At Indiabulls Home Loans, you would get up to 85% of the home price in case of a housing loan. In comparison, maximum LTV for loans to buy land parcel is up to 70%. Therefore, if you buy land to build your home, you will have to make a higher down payment through your personal resources.
Housing loans have a longer tenure, which ensures you do not have financial difficulty in servicing the monthly instalments. Because loans for land purchase have shorter repayment tenure, you may face financial distress while servicing the same. The application procedure, requirements, and due diligence procedure are similar for both these types of loans. It is recommended you consider your personal requirements and financial situation before making your decision.