Land Loans Benefit

Last Updated 06th Apr 2020

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A land purchase loan or a plot loan is taken to facilitate the purchase of a plot on residential property and then commence construction over the same in a stipulated time.

  • Interest rates as low as home loan rates starting @7.15%*
  • High loan amount eligibility with low processing fees
  • Option to add co-applicant to increase eligibility to get a land loan
  • Maximum loan up to‭ ‬70%‭ ‬of the property value
  • Add co-applicants to increase loan amount eligibility
Apply for Home Loan @ 7.15%* Get upto ₹ 1,000* Cashback

What is a Land Loan‭?

Loan for land purchase is also known as Plot loan.‭ ‬It is a loan which helps borrowers to purchase a plot or land.‭ ‬Many borrowers often get confused between a land loan and a‭ ‬home loan.‭ ‬A home loan is a loan that facilitates borrowers to purchase an existing house property or construction of a new flat or house.‭ ‬On the other hand,‭ ‬land loans are availed only for the purchase of the land on which construction is planned to be carried out subsequently.
Like other loans,‭ ‬a‭ ‬land loans is also repaid in EMIs‭ (‬Equated Monthly Instalments‭) ‬with the lender charging an interest rate on the principal loan amount secured by the borrower.‭ ‬The borrower is required to pay the loan within the stipulated time,‭ ‬failing which the lender has the legal right to confiscate your property to realize the loan amount.

Types of Land Loans

Before we get into the feature‭ & ‬schemes run by various banks,‭ ‬it is important to understand the distinction between a plot only and a plot‭ ‬+‭ ‬construction loan.‭

Plot Loan‭ ‬-‭ ‭ ‬A plot purchase loan can only be availed for the purchase of a vacant residential plot or a piece of land which can be later used to construct a house or for investment purpose.‭ ‬The property should be located within the municipal or corporate limits.‭ ‬This type of loan is a high-risk loan,‭ ‬and there are no tax benefits.‭

Plot‭ ‬+‭ ‬Construction Loan‭ – This loan is availed to purchase a residential plot and construct a house on the property within the stipulated time.‭ ‬If a borrower does not commence construction within the specified period,‭ ‬then the bank can increase the interest rate on loan.‭ ‬This article further carries information about Plot loan with construction and how this is different from the regular home loan.

Parameters Land Loan with Construction Regular Home Loan
land loan interest rates Rates are similar to a home loan,‭ ‬but the rates can be higher if you want the construction period to be longer‭ Interest rates are starting @7.15%*.
LTV Upto‭ ‬70%‭ ‬of property’s value Upto‭ ‬90%‭ ‬of property’s value
Tenure Upto‭ ‬15‭ ‬years Upto‭ ‬30‭ ‬years
Tax Benefits Only on loan amount that is taken for construction and the benefit can be claimed after completion of construction On principal amount under section‭ ‬80C and interest amount under section‭ ‬24‭(‬b)
Prepayment Penalty Nil for individuals on floating rates Nil for individuals on floating rates

Land Loan Interest Rates : The rate of interest in case of loan to buy land and home loans are similar.‭ ‬However,‭ ‬some banks offer a few basis points higher rates for land purchase loans than that of home loans.‭ ‬Banks give a stipulated time for construction over the plot,‭ ‬and the borrower is required to submit a construction certificate with the bank.‭ ‬If the borrower does not make construction over the plot within the period from the date of the first disbursement,‭ ‬land loan interest rates structure for the borrower changes from a home loan to a loan against property.

Loan to Value Ratio‭ (‬LTV‭)‬ :‭ Loan to value or LTV means the amount of loan which a borrower will get against his property.‭ ‬LTV,‭ ‬in the case of‭ ‬loan for land purchase with construction,‭ ‬is significantly lower and could be capped at a maximum of‭ ‬70%‭ ‬of the land value.‭ ‬In the case of home loans,‭ ‬LTV ranges between‭ ‬75%‭ ‬to‭ ‬90%.

Lower Tenure :‭ A land loans has relatively a shorter tenure of up to‭ ‬15‭ ‬years,‭ ‬which is not the case in home loans,‭ ‬which is accompanied by a longer tenure of‭ ‬30‭ ‬years.‭ ‬Therefore,‭ ‬the EMI in the case of a loan for plot purchase is higher than that of regular home loans.‭ ‬The tenure for a land loan also depends on the age of the borrower,‭ ‬repayment capacity,‭ ‬etc.

Tax Benefits : Home loans qualify for a tax deduction on payment of the principal amount under Section‭ ‬80C of the Income Tax Act as well as the interest component under Section‭ ‬24‭(‬b‭) ‬of the Income Tax Act.‭ ‬On the other hand,‭ ‬tax benefits on a land loans are not available.‭ ‬However,‭ ‬borrowers could claim a tax deduction on if the house is constructed on a plot purchased by the borrower.‭ ‬A borrower can claim a tax deduction against the loan amount taken for construction,‭ ‬after the completion of construction on the plot.

Prepayment Penalty : Floating rate loans sanctioned to individual borrowers are free from the prepayment penalty if a borrower wants to foreclose the loan.‭ ‬However,‭ ‬a land loan like a home loan could attract prepayment charges of‭ ‬2‭ ‬to‭ ‬4%‭ ‬of the prepaid amount if the non-individual borrower has taken it.‭ ‬A borrower should read the loan agreement carefully and clarify the foreclosure charges of the loan before signing the agreement.‭

Plot Loan Eligibility Criteria

Borrowers are required to meet the eligibility criteria mentioned by the lender to apply for one.‭ ‬Use the plot loan eligibility calculator online to know the eligibility.

  • A borrower should be a resident of India
  • A borrower should be between‭ ‬18‭ ‬and‭ ‬70‭ ‬years of agent
  • A borrower should have a regular flow of income
  • Borrower could be salaried or self-employed individual
  • A CIBIL Score of‭ ‬650‭ ‬or above is required

The borrower is required to commence construction over the land or plot within the stipulated time to get a plot‭ ‬+‭ ‬construction loan.‭ ‬The stipulated time frame can vary from lender to lender.‭ ‬For example,‭ ‬SBI specifies a construction period of‭ ‬5‭ ‬years from the date the loan has been sanctioned.‭ ‬However,‭ ‬ICICI Bank specifies a construction period of‭ ‬2‭ ‬years on plot‭ ‬+‭ ‬construction loan.

Quick Tips to Get a‭ ‬Loan to buy Land

Plot purchase loans are not easily financed by the lender,‭ ‬because of the risk which it brings to the lender.‭ ‬So,‭ ‬to avoid loan rejection and increase your chances of loan approval,‭ ‬follow a few basic tips:

  • A good credit score : A borrower would require a good credit score of above‭ ‬650‭ ‬to avail the loan.‭ ‬If a borrower has a good cibil score,‭ ‬it will reduce the risk factor for the lender,‭ ‬and increase the loan approval chances
  • Debt and Income Ratio : The loan application will be approved if the borrower has a good debt and income ratio.‭ ‬Lesser the ratio,‭ ‬the better are the chances of loan approval.
  • ‭Apply for a loan based on your repayment capacity : Before applying a‭ ‬loan for plot purchase,‭ ‬borrowers need to evaluate that how much loan amount they can afford.‭ ‬To check the loan affordability,‭ ‬borrowers may make use of online calculators to know the eligibility.

Documents Required for Plot Loan

The documents required in the case of loan for land purchase are similar to home loan documents.

  • Duly Filed Loan Application Form
  • Recent Passport Size Photographs
  • Last‭ ‬2‭ ‬years ITR
  • Proof of Identity‭ – ‬PAN Card,‭ ‬Voter’s ID Card,‭ ‬Passport,‭ ‬Driving Licence
  • Proof of Residence‭ – ‬Rent agreement,‭ ‬Leave and License,‭ ‬Latest Utility Bills and Passport
  • Income Documents for salaried‭– ‬6‭ ‬months payslip,‭ ‬2‭ ‬years Form‭ ‬16,‭ ‬latest‭ ‬6‭ ‬months bank statement showing salary credit
  • Business proof for self employed such as VAT/‭ ‬service tax registration,‭ ‬incorporation details in case of companies,‭ ‬business address proof,‭ ‬profit and loss account and balance sheets certified by CA,‭ ‬copy of partnership deed and proof of business existence and business profile
  • Property Documents‭ ‬-‭ ‬Past title chain,‭ ‬Sales deed,‭ ‬Conveyance deed,‭ ‬Allotment letter,‭ ‬Possession letter,‭ ‬Latest property tax receipt,‭ ‬Copy of approved plan for construction/‭ ‬extension

FAQs on‭ ‬Loan for‭ ‬Land‭ ‬Purchase

Can I get a home loan for land purchase‭?

No,‭ ‬if a borrower wishes to buy a vacant plot or a piece of land,‭ ‬he/she cannot apply for a home loan.‭ ‬In this case,‭ ‬they need to apply for a land purchase loan as the home loan is available only for the property already constructed or which is undergoing construction.

Are there any tax benefits on the land purchase loan‭?

No,‭ ‬there are no tax benefits available on a land purchase loan,‭ ‬unlike home loans.‭ ‬However,‭ ‬if a borrower wishes to avail of tax benefits on a land purchase loan,‭ ‬he/she needs to construct a house on the purchased plot

What are the minimum and maximum tenure of land purchase loan‭?

These are generally taken for a shorter period of time as compared to home loans.‭ ‬Banks or NBFCs give loan for a tenure of‭ ‬15‭ ‬years on the land purchase loan.

What is the minimum CIBIL score required for plot loan‭?

The minimum credit score required to avail of a‭ ‬loan to buy land or plot is‭ ‬650‭ ‬and above.‭ ‬And,‭ ‬if a borrower has a credit score below‭ ‬650,‭ ‬it might get difficult to get the loan approved easily.

Home Loan News - Apr 2020
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