Home Loan vs. Land Loan – What’s the Difference?
There are different types of loans available in the market. Loans for buying a home, education, car purchase or other financial needs. The most common type of loan is Home Loan. People avail this loan to fund their house purchase needs. Most people get confused between a land loan that is usually availed to buy a plot or land and a Home Loan that is used to buy a constructed house.
Although certain parameters, terms and conditions and the tenure of a land loan and Home Loan are quite similar, there are certain fundamental differences that need to be kept in mind. Let us understand the difference between Home Loan in India and a land loan to help evaluate your options better.
A Home Loan is granted by a bank, NBFC (non-banking financial company) or other financial institution to buy a house that is already constructed, under construction or approved to be constructed. This is applicable to properties irrespective of their size or location. Land loans can be availed to buy a vacant plot that is non-agricultural, residential, non-commercial, not in an industrial area, within local municipal limits, and not in a village.
Home Loan-to-Value (LTV) Ratio
Loan-to-Value ratio is the quantum of the loan the borrowers are eligible to borrow from banks to buy a property. In the case of a Home Loan, banks grant you a loan of 80-85% of the total home value and in certain cases, it may go up to 90% too. This means that you only need to pay 10% of the loan amount yourself.
However, in the case of land loans, the LTV ratio is 70% only. That means you need to pay the balance 30% yourself. Besides this, you also need to bear certain out-of-pocket expenses to avail a land loan.
A Home Loan in India has certain tax deductions applicable on its principal and interest amount. However, land loans do not offer any such benefit. You can avail tax deductions only if you are actually constructing a house on that vacant plot.
The Tenure for Land Loans is usually 15 years, while for a Home Loan it can go up to 30 years too.
Cap on Loan Amounts
There are certain banks that have a cap or maximum limit on a land loan that can be availed. Punjab National Bank and Indian Bank, for example, have a maximum stipulated amount that can go up to 1 Crore and 50 Lakhs, respectively for purchasing land. If you have a lender or bank in mind, check with them before applying for one. Home Loans are determined by your capacity to repay the loan along with your credit history and salary. You need to check the interest rates with your bank before you Apply Online for Different Home Loan Options.
Besides this, the documentation, EMI (Equated Monthly Instalment) options, need for co-applicants, the rate of interest, and so on are same for land loans and Home Loans. Thus, as you can see, Home Loan and land loans are fundamentally different from each other. They have distinct elements that set them apart. On our website, MyMoneyMantra get a complete analysis of the Type of Home Loan or land loan that is suitable for you; whether it is a lucrative option or not. The guidelines stated with us help you assess the type of home loan or land loan feasible for you.
Also Read: How to Apply for Home Loan with Low Income?
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