Buying a home is a major financial decision and hence, you must evaluate various aspects of the property before making the final choice. As a result of the massive price hike in the real estate sector, purchasing a home has become an expensive deal. Due to this, home loans are gaining more and more popularity these days. Competitive interest rates on home loans and flexible repayment options have contributed majorly to its growing acceptance amongst the potential home buyers. So, if you are looking forward to buying a house for yourself, a home loan can serve as a great financing option. Another type of loan that can be availed for constructing a new house, is a land loan or plot loan.
Below is a quick guide to the basic differences between a land loan and a home loan. This will allow you to have a better understanding of both these loan types.
Homeloans
Home loans are availed for purchasing new or a pre-owned home. These loans can be easily availed with the help of banks and other leading financial institutions. The approved loan amount is usually up to 80-85% of the market value of the house. The interest rates charged on these loans are either fixed, floating or hybrid.
Land loans
Several financial institutions provide loans for land purchase. You can purchase a plot to construct a house or just for an investment purpose. With leading banks and NBFCs, it is possible to avail financing for 80-85% of the total price of the plot.
The major difference between home loans and land loans is that home loans can be availed for all the approved properties irrespective of their size or location. On the other hand, land loans can be used to purchase a vacant plot which is:
- Non-agricultural land
- Residential
- Lies in the municipal corporation limits
- Non-commercial
- Not an industrial area
- Not located in the village
The eligibility criteria for land loans are more stringent as compared to a home loan. Lenders grant a land loan only to those borrowers who are certain of constructing a home on the purchased plot in the given frame of time. For Non-Resident Indians, availing a land loan is even more difficult. There are various government regulations that make availing land loans a tedious process for the NRIs.
On completion of the house construction, borrowers are required to submit a completion certificate to the financial institutions. After this, the land loan can be converted into a home loan and the borrower can avail applicable tax benefits. As per the present regulation system, the land loans don’t offer tax benefits.
While applying for either of these loans, make sure to compare various deals offered by different financial institutions. This will allow you to avail a loan that best suits your needs. You should also research the financial institution before making the final decision. Lastly, do not forget to read the terms and conditions of your loan agreement carefully before signing it. This will help you avoid any inconvenience in the later stage.
