If you’re thinking about purchasing land, you might be concerned about the big price tag. However, that is untrue! You can obtain loan for buying land today. As the name implies, it is a loan for purchasing a plot on which you intend to build a home in the future. These loan for buying land are available to you at low rates of interest and you may choose the term and repayment option.
These loans, also referred to as land loans, are frequently mistaken with housing loans. The main difference between a plot loan and a house loan is that a plot loan can only be used to buy land. In contrast, a housing loan could be used to purchase a flat, apartment, or mansion that is either being built or is already ready for living.
Features of a Land Loan
The following are the features of a loan for buying land (Land loan):
- The piece of property you are borrowing money for must be situated inside the corporate or municipal boundaries.
- A community or industrial district cannot be near the property.
- You cannot purchase agricultural land with a land loan or plot loan.
- The loan for buying land has a maximum 15-year term.
- You can use a land loan to buy a plot of land by direct allotment or to buy a resale plot, based on the lender.
- Only loans taken to build a property on a piece of land are eligible for a tax deduction, and that deduction can only be made after construction is complete.
- The LTV ratio that you’ll receive, or the Debt to Value ratio, is up to 80%. This indicates that loans up to 70% of the cost of the property will be made available.
Differences between a home loan and a land loan
Below are the differences between a home loan and a land loan based on many factors:
- Loan-to-Value ratio
LTV ratios for mortgages range from 75% to 90%. On the other hand, your maximum LTV ratio for a land loan is between 75% and 80%. This means that a down payment of at least 20% of the plot’s value is required if you want to purchase a piece of land as an asset or for own use.
- Location and purpose of the property
Housing loans are available for finished, self-built, and under-construction properties. The Loan for buying land, on the other hand, can be used to buy a parcel of land as long as it will only be used for residential purposes.
- Tax advantages
There are no tax deductions for land loans or plot purchases, in contrast to home loans where borrowers can deduct both interest and principal repayment.
Similarity between Land Loans and Home Loans
Speaking of the parallels, the qualifying requirements, application process, and interest rates for both loans are the same. However, it’s important to keep in mind that this may also rely on the bank or Non-Banking Financial Company (NBFC) from which you’re filing your application.
Additionally, whether you are asking for a land loan or a home loan, the process of applying heavily relies on your credit score.
In addition, the lenders’ due diligence procedure used to process both of these loans is typically the same, irrespective of whether you apply for a home equity loan or a land loan.
Additionally, the terms for co-applicants and the EMI alternatives offered by lenders are similar for both home loans and land loans.
Things to consider before applying for a Land loan
You should be aware of the following information before buying land.
- Ratio of Debt to Income
Only when you have a decent debt to income ratio will your loan application be approved. Any lender wants the borrower to pay back the loan in full and on time, and if you make a good living, you can easily do so.
- A high credit rating
Before approving any form of loan, all lenders take the applicant’s CIBIL into account. A credit score of 750 or above is required to get approved for a loan for buying land. A high CIBIL score indicates that you made on-time payments on your previous loans, which lowers the risk factor for the lender.
- Lower loan amount
It is simpler for you to pay back the loan in manageable EMIs if you choose a lesser loan amount. A property that can be sold again in the future for a profit is one that has a minimum debt amount attached to it.
To assist you in the process, Hero Housing Finance Limited offers you the best plot loan options and deals. by providing you with a wealth of advantages and making each and every step hassle-free and simple to complete when you choose a loan for buying land or perhaps a housing loan.