While some banks offer home loans to construct or purchase a house and to buy land too, there are loans which are offered only to buy land. Home loans and land loans are not the same. They are similar in many ways, but they have differences.
In this article you will find out the answers to two questions:
1. What are the differences between a home loan and land loan?
2. Which one is suitable for you?
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Both home loans and land loans are offered by banks and Non-Banking Financial Companies (NBFCs). The applicants must be Indian residents over 21 years of age. Composite loans can be availed to buy land and construct a house on it.
a. Banks grant home loans:
b. Banks grant land loans:
a. A home loan is available to purchase any property, irrespective of location, size, and so on.
b. A land loan has certain regulations like:
The Loan To Value (LTV) ratio is used to express the amount of loan that you can get, to the value of the asset in question.
a. In case of a home loan, banks grant a loan amount of up to 80-85% of the property value. In some cases, the LTV goes up to 90%.
b. Contrastingly, banks grant a lower LTV in case of land loans. The maximum LTV is 70% of the plot value. You have to fund a good 30% of the costs from your own pocket.
Moreover, if you are planning to buy land in smaller cities, the maximum Loan To Value (LTV) ratio can be even lower at 50-60%.
Banks charge almost the same rate of interest on a home loan as the land loan. However, the rate of interest charged on land loans are usually a few basis points more than home loans (100 basis points equal 1%).
The interest rate also depends on the borrower’s profile.
The tenure for home loans is higher in comparison to land loans.
a. The tenure for home loans can be anywhere between 20 to 30 years.
b. The land Loans have a maximum tenure of 15 years. However, some NBFCs offer a 20 year tenure.
When it comes to taxes, a home loan gives you a lot of tax benefits.
a. You can claim tax benefits on the home loan EMIs that you pay.
b. The biggest drawback of a land loan is that you do not get any tax benefits on it.
The documents and their legal verification (due diligence) for land loans, is as stringent as home loans.
You must have got the answers to the two questions mentioned at the beginning of the article. You need not avail a home loan to buy a plot of land. You can avail a land loan for this purpose. However, land loans have certain shortcomings. Based on the purpose of buying the land, you should avail the suitable loan. So, be wise and avail loans according to your needs.
Be Wise, Get Rich.
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