Who is eligible?
Although NRIs can easily get a home loan, however, when it comes to land loans, only indigenous people in India can get a loan as this loan is not offered by NRI.
What type of property is suitable?
Home loan lending rules are quite flexible when it comes to the type of property that can qualify for a loan. However, when it comes to land, lending is very limited and limited to only certain types of land.
“Lenders usually finance land allocated by development authorities. These days, several builders are coming up with different projects in which land is allocated, such land can also be financed subject to the legal approval of the lender, ”says Rishi Mehra, CEO of Wishfin.com.
Land use status becomes critical as lenders offer financing mainly for residential land. Thus, you may not get a loan to buy agricultural or commercial land. While there are some special loans that can be used to buy agricultural land, these loans are not available to all borrowers as they target a specific group of borrowers such as marginal farmers or landless workers.
Although a home loan can be taken even for real estate outside the municipal area, land in a village or industrial area usually does not qualify for a land loan. It must be located within a corporation or municipality.
The specified land should also have a clear demarcation. “The specified piece of land must be identifiable at the time of the visit, therefore it requires a border wall without fail,” adds Mehra.
What is the maximum loan amount that can be obtained?
The loan cost (LTV) for a land loan is different from a home loan. In the case of a home loan, many borrowers receive up to 90% of the value of the property as the loan amount, however the loan amount is lower for a land loan. “In case of obtaining a land loan, borrowers can use 70% – 75% of the value of the property. This is applicable in cases where only land purchases are financed. Lenders tend to increase financing if the client uses a loan to purchase land and build, ”says Mehra.
Although 75% is the upper limit, in practice lenders are more conservative in terms of both land valuation and the amount of the loan they will lend. Therefore, it is better to count on a smaller loan amount when looking to buy land with a loan and agree on a down payment of at least 30% or more.
|Difference between home loan and land loan|
|Loan type||Home loan||Land loan|
|Who is eligible||Resident Indians and NRIs||Only standing Indians|
|Location||Anywhere||Municipal or corporate area|
|Maximum loan||90% of the property value||75% of the value of the land|
|Interest rate||Lowest among retail loans||From 0.5% to 1% in excess of the home loan|
|Possession||Up to 30 years old||Up to 15 years old|
|Tax relief||Payment of interest and principal||Not|
What is it interest rate?
Interest rates on home loans are among the lowest among all loans. However, this does not apply to a land loan as it is provided at a higher rate.
“The interest rate on a land loan is 0.50%, which is 1% higher than on a home loan. Currently, the interest rate on land loans starts at 7.05% (HDFC Ltd) for up to 30 lakhs. It depends on each lender, ”says Mehra. Home loan interest rate from HDFC and SBI starts at 6.75% for female borrowers.
What is a loan possession?
Home loans offer one of the highest loan maturities, which can go up to 30 years. However, the term of owning a land loan is not that long. “Land loans are available for a shorter tenure than home loans. The maximum possible tenure period for land loans is 15 years. Lenders such as SBI offer 10 years of ownership in the event of a land loan, ”says Mehra.
Not tax land loan exemption
Whereas the repayment of the principal of the home loan for self-ownership and the payment of interest are subject to income tax deductible deduction according to section 80C and section 24b, respectively. There is no such tax benefit for a land loan.
Construction-related composite loan
A composite loan is a loan provided by lenders to buy a plot or land and build a house on it on time. For this, you can get on credit about 70-75% of the value of the land.
“One of the most important provisions of a composite loan, which clients do not know about, is that the construction of this facility is limited in time. Borrowers should start construction in 3-5 years, this period of time varies from lender to lender, ”says Mehra.
The part of the loan intended for construction is paid only after the borrower fulfills certain conditions. “When submitting an application, they must provide a construction estimate and an approved plan from the local authorities along with a chain of documents for the land. The construction loan is issued only after the completion of the foundation work on the land plot ”
Before construction begins, the borrower must pay a higher interest rate, for example, on a land loan. “The combination loan has the same interest rate as the home loan. However, the borrower is charged a slightly higher interest rate, for example on a land loan, until they start building, ”Mehra adds.