Banks and non-banking financing companies both offer housing loans and land loans to people looking to buy property. Borrowers can get a home loan for a property that is currently built, one that is being built, or one that will be built in the future. Those who want to buy land, whether to build a house or for investment purposes, may not be eligible for a home loan and must instead apply for a land loan.
Although the application processes, terms, and conditions, as well as the loan tenure, are essentially identical for both a home loan and a loan for land purchase, there are some significant distinctions between the two.
Differences in Home Loans and Land Loans
The main distinction between these two types of loans is that a home loan can only be used to purchase an already built or under-construction residential property, such as a house or an apartment. A plot loan, also known as a land loan, can only be used to purchase a piece of land that has been designated for residential development.
1. Difference in Eligibility
While NRIs can easily obtain a home loan, only resident Indians are eligible for a land loan. You can check your eligibility for a housing loan using this home loan eligibility calculator.
2. Type of Property Eligible
When it comes to the types of properties that would qualify for a loan, housing loan lending rules are flexible when it comes to the type of house etc. When it comes to land, however, lending is limited to only certain types of land.
3. Loan Amount
A land loan has a different loan to value than a housing loan. Many borrowers can acquire up to 90% of the property’s worth as a loan amount for a home loan, but the loan amount for a land loan is smaller.
Borrowers might get 70 percent to 75 percent of the property cost with a land loan. This is true when simply the land acquisition is being paid for. While the highest limit is 75 percent, lenders are more conservative in practice, both in terms of land valuation and the amount of loan they will lend. If you’re planning on taking a land loan, it’s best to assume a lower loan amount and save up for a downpayment of at least 30% or more.
4. Tenure
Housing loans have one of the longest loan repayment terms, which can be up to 30 years. The land loan, on the other hand, has a short term. In contrast to housing loans, land loans have a shorter repayment period. Land loans have a maximum term of 15 years.
5. Tax
While the repayment of a self-occupied property’s home loan principal and interest payments are both eligible for income tax deductions under section 80C and section 24b, respectively, on a land loan, however, there is no corresponding tax benefit.
6. Interest Rate
Home loans have some of the lowest interest rates of any type of loan. The same cannot be said for the land loan, which has a higher interest rate. The actual rates differ from one lender to the other.
Conclusion
Buying a new home and buying land via housing loans or land loans, both purchases would be referred to as buying property in common usage; nonetheless, there are differences that must be considered while seeking financing.
Home loans are available for properties that are expected to be built in the future, are now under construction, or are ready to move into, whereas land loans are available for the purchase of a plot of land for the purpose of building a house or investing.
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