Home Loan vs Land Loan – Knowing the Difference

In India, buying a new home or a piece of land is often equated to buying a real estate property. However, not many people know that buying a home is quite different from buying a land or plot, especially when it comes to applying for a loan.

Home loans are specifically meant for buying a new ready to move-in, or under-construction home from a builder or buying a resale property from the seller. However, land loans are meant only for purchasing a plot to build a home or for investment purposes. Let us understand more about the similarities and differences between home loan and land loan.

Whether you apply for a home loan or a land loan, the application process for both is similar. You must submit a form to the lender of your choice and comply with the necessary documentation. Also, the sanction process is the same for both loan types. Also, the EMI options offered and the rules relating to applying for a co-borrower is same for both home and land loan.

Now that you know about the similarities, let us take a closer look at the differences.

·Purpose

 You can apply for a home loan India to buy any type of home including a luxurious apartment, a flat, row house or a villa. You can get a loan for buying a ready flat, or an under-construction property.

On the other hand, you can avail of a land loan only for buying a plot or a piece of land which you can use for residential purposes.

·LTV to Loan to Value Ratio

LTV is the maximum amount you can get as a loan against the value of the property you want to buy. Generally, most lenders in India sanction up to 80% of the property’s value as home loan. In some cases, if you have an existing relationship with the lender, you can get up to 90% of the property’s value as a loan.

In contrast, the LTV for a land loan is lower than a home loan. For land loans, the maximum LTV is capped at 75% to 80% of the property value.

So, if you are applying for a land loan or a home loan, there is only a specific amount you can borrow from the lender. You must pay the remaining amount as down payment from your pocket. Down payment is an important part of the home loan process. So, make sure that you have the funds ready beforehand to avoid delay in the loan approval and disbursal process.

·Repayment tenure

The repayment tenure for home loans is much longer compared to the loan loans. You can get a home loan for a maximum period of 30 years. But the maximum tenure for land loan is capped at 15 years.

·Tax advantage

If you avail home loan, both the principal and interest amount you repay to the lender are eligible for tax deduction. You can get a deduction up to Rs. 1.5 lakhs on the principal amount under Section 80C of the Indian Income Act. The interest you repay is subject to tax deduction up to Rs. 2 lakhs in a financial year under Section 24 of the IT Act.

For land loan or plot loan, the tax deduction is available only for the loan taken for home construction and these benefits are available only after the construction is completed.

Final Word

Now that you are aware of the difference between home loan and land loan, apply for the right type of credit to suit your needs.