Loan for Buying Plot? Here’s all you need to know!

From time immemorial, Indians are inclined towards buying land either for investment purpose or for constructing a home. Now, if you are looking to buy a plot, you will not be eligible for a home loan as these are only available for the property already constructed, under construction or likely to undergo construction soon. But you can get ‘land loan’.

In this article, we present you important things you should know about ‘land loan’.
Home loan vs land loan
• Normally, interest rates are same in both the cases but sometimes it can be higher in case of a land loan. Like home loans, fixed as well as floating interest rates are available in land loans.
• The tenure of loan repayment is lower in case of land loan. You may get loans for up to 30 years in home loan, while the tenure for plot loan is 5-15 years. This in some cases may also mean higher EMIs.
• In home loans, floating rates have no pre-payment charges. However, this may not be the case with land loans. You must get a clarification in this regard from your bank.
• Home loans that are usually available for all the properties regardless of the location or type, while land loans can only be availed for residential plots. Moreover, some banks give loans only for land that falls within municipal limits.
• Land loans does not apply to agricultural land.
• Loan to Value, commonly known as LTV, is low for land loan. For home loan, usually you can get up to 80-85 per cent, for a land loan, amount you can avail is about 60-75 per cent.
• While home loan provides tax benefits on both interest and principal amount, land loan does not offer any such benefits to the borrower. However, if you are constructing a house, you can avail tax benefits after the construction is completed, but for the loan taken against construction.
• Most banks keep a cap on maximum amount that you can avail as land loan.
• Majority of the banks does not offer land loans to the Non Resident Indians.

Eligibility

Like any other loan, banks check the repayment capacity of the borrower. Banks will look into your monthly income, savings and the income of your spouse, if any. Some banks give loans only for land that falls within municipal limits, while there are others which require the borrower to start construction work within six months or so. If you do not intend to start construction work soon, land loan is not a good idea. Many banks increase the interest rate by one or two per cent or withdraw the loan completely if the borrower fails to begin construction work within the time-frame stipulated by them.

How much loan can I avail?

The maximum loan you can get depends on the plot’s value and your income. Suppose the value of your property is Rs 20 lakh, banks will give you something around Rs 16 lakh and you will have to arrange for the remaining amount on your own.

Interest rates and down payment

Normally, the interest rates on home loan and land loan are at par. However, the down payment is usually higher in land loan as compared to home loan. In home loans, the borrower has to make arrangement of only 20 per cent of total cost of the property while for plots it could be sometimes be as high as 30-35 per cent.

Documents required

While applying for a plot loan, borrowers need to show original documents related to land ownership and land records. In addition, copies of approved drawings of proposed purchase, agreement for sale/sale deed from architect/engineer for the property to be purchased, and title deeds, including the previous chain of the property documents in resale cases are also required.
If the plot is converted, banks also check whether charges like conversion and development charges have been paid.
It would be better if you hire a lawyer for the verification of legal documents related to your plot.

Rishi Mehra, co-founder, deal4loans.com

The views expressed in this article are author´s own