How Is Home Loan Differentiated From a Land Loan?
In recent years, the propensity to borrow among Indians has increased by quite a lot. More individuals are looking to avail advances to invest in various sectors like real estate, business, etc. But even with the housing sector becoming the 4th highest contributor to the country’s GDP, many borrowers still have no clear idea about the difference between a home loan and land loan.
Now, even though there are similarities between the two advances, they differ substantially in some core areas. To understand the difference between the two, it is crucial to know more about each of these advances.
What do home loans entail?
A home loan is an advance that you can avail to purchase properties that are-
- Already constructed
- To-be constructed
- Under construction
If the property you want to buy does not comply with the conditions above, you cannot avail a home loan for it.
There are several benefits of availing a home loan. These include –
- You can avail a high loan amount of up to Rs. 3.5 Crore from reputed lenders.
- Financial institutions often offer affordable home loan rates of interest.
- You can avail home loan tax exemptions and benefits under Section 80C and 24B for this credit.
- Being secured credits, the eligibility criteria for home loans are somewhat relaxed. Further, you can use an eligibility calculator to check the amount you are eligible for.
What is a land loan?
A plot or land loan can be availed only when you want to invest in a vacant piece of land. Under this advance the lender provides credits
- When you plan to purchase a resale plot
- When you plan to invest in a piece of land through direct allotment
There are several benefits of availing this loan. They are-
- You can avail a high loan amount value.
- Lenders offer competitive interest rates for this type of advance.
- Financial institutions offer instant approval and easy disbursal benefits for this loan.
Now, even though there are similarities between home loans and land loans regarding their loan amount value, interest rates and the process of availing them, there are some fundamental differences between the two.
Difference between land and home loans
Some of the differences between these advances are outlined below
Type and location of the property
Most lenders provide home loans irrespective of the type and location of the property you want to purchase. However, in the case of land, there are restrictions regarding the type you wish to purchase.
For instance, financial institutions mostly provide these loans for residential plots. Additionally, there are limitations regarding the location of the plot you want to purchase. Most lenders offer the advance for plots located within corporation and municipality limits.
Difference in LTV
LTV or loan to value signifies the quantum of the advance you can avail for a property. While you can avail an amount of up to 85% as LTV with home loans, you can avail a maximum of 70% as LTV for a loan for land purchase. You need to shell out the remaining 30% of the fund from your pocket.
Difference in tenor
The tenor for plot loans is comparatively lower than home loans. With home loans, lenders offer tenor of up to 240 months. But in the case of credit for purchasing land, the tenor is much shorter. A shorter tenor means you will have to pay higher EMI for repayment of the loan. You can use an EMI calculator to know the amount you have to pay each month before availing the advance. Using an EMI calculator also helps you to know how much home loan EMI you can afford.
With home loans, individuals can avail tax benefits under Section 80C and 24B of the Income Tax Act. However, there are no such benefits in the case of loans for purchasing land.
Thus, even with similarities in certain areas, there are substantial differences between a housing loan and a land loan. So, it is crucial to understand your requirements before you apply to avail any of the advances.