Plot Loan Vs Home Loans: Here’s What You Should Know
After much discussion with your family members, you have finally decided to get a house. Now, the next valid step is to obtain a loan. Still, you are perplexed by the options provided by banks, whether to take a home construction loan for an under-construction property/apartment or go for plot loans that allow you to buy a piece of land to construct a house of your dreams in future.
So you’re confused about your options and want to understand the distinction between home loans and plot loan before applying. If this seems familiar, don’t worry. In this post, we’ll go over the two types of loan products in detail so you can make an informed decision.
Plot Loan Vs Home Loans
Here is a detailed comparison of a plot loan and a home loan.
The primary difference between these two categories of loans is the purpose of applying for funds. An applicant for a house loan may use the cash to purchase a residential under-construction or entirely constructed property. Additionally, home loans can also be used as home construction loan. Applicants can use the secured funds for building their houses.
On the other hand, the plot loan is intended to purchase a piece of land designated for residential development. Therefore, while disbursing the land loan, banks may require the borrower to guarantee that construction on the land will begin within a specific time frame.
Land loans cannot be used to purchase a home or to build a residence. Similarly, housing loans cannot be used to buy land.
Only residential properties are eligible for a house loan. This, however, includes a variety of property types such as freehold residential apartments, under-construction flats, builder flats, and government-approved residential developments. Applicants can also apply for a home construction loan to build their own homes.
Plot loans can only be used to purchase land for residential purposes. Furthermore, the land should be located within municipal limits rather than in a village. The loan cannot be used to purchase industrial or agricultural land.
Loan to Value (LTV)
The loan to value is the quantity of money applicants can borrow against the property’s value. Because a home loan is granted with residential property as collateral, the LTV on a home loan is more significant than that of a land loan. In general, the LTV on a home loan can reach up to 90% of the appraised value. On the other hand, the LTV on land loans can range anywhere from 70% to 80%. It may, however, differ from one lender to the next.
Applicants of housing loans can claim tax deductions for both principal repayment and interest amount under Sections 80C and 24 of the IT Act.
Land loans, on the other hand, are not tax-exempt. However, if applicants commence development on the land, they may be eligible for a tax break on the construction loan. Furthermore, the tax benefits will only be claimed once the house is completed.
In most cases, lenders charge lower interest rates on home loans than on plot loans. The rationale for this is that land loans are regarded as riskier investments. In contrast, banks can sell residences to recover loan amounts if borrowers default on housing loans.
Plot loans and home loans are available to both salaried and self-employed professionals. Both of these loans have the exact eligibility requirements and application process. Furthermore, the maximum repayment term for both loans is 30 years. However, it varies depending on the prospective lender. So, if you are thinking about buying a home for your family but are undecided between a home loan and a plot loan, the above article has clearly defined the distinctions between the two. You can now compare the parameters with several lenders and choose the best solution for your needs.