Article -> Article Details
Title | Difference Between Home Loan and Land Loan |
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Category | Real Estate --> Investment |
Meta Keywords | home loan, land loan, home loan vs land loan, difference between home loan and land loan |
Owner | Harmanjot Singh |
Description | |
Everyone
needs a house to dwell in, some people choose to buy a new apartment in
residential societies of a prime area for modern living & some people
choose to buy a piece of land to construct their own house. For both purposes,
you need the money and you can get that from financial institutions. It does not sound different to many people to buy a new house or a plot of land, although all transactions can be referred to as purchasing a property in common parlance; but, when applying for loans, there are variations that must be addressed. For
already built homes, under construction homes, or those which will be built in
the future, homeowners use home loans. Those who want to buy land, whether for
building a house or simply for investment purposes, however, can not apply for
a home loan and must go for a land loan instead. The
due diligence process performed by the lenders for handling all forms of loans
is exactly the same, regardless of whether you apply for a home loan or a land
loan. Your credit score still plays a major role, whether it be for a home loan
or a plot loan, in your home loan application process. While
the application procedures, terms and conditions, and the tenure of the loan,
are about the same with both home loans and land purchase loans, there are some
basic differences between the two. Property
Location and Purpose: The
land loan is for residential plots only. The land should be within the limits
of the municipality or corporation. If you are purchasing agricultural land,
you would not be eligible for a land loan. It should be remembered that the
property should not be situated in an industrial area or a village. These
plots may be in a housing society, or resale plots in a development authority
scheme, or a plot of land within the limits of the city or plots outside the
limits of the city. It should be certified by a competent authority, solely for
residential purposes. But after the purchase, you will be liable for a home
loan for the building of your house on that property. Home
loans may, however, be used for ready homes, homes under development, or for
self-construction. Home loans on all
properties, regardless of their location or type, are available. Loan
to Value Ratio (LTV)/Loan to Cost Ratio (LCR): The
LTV / LCR ratio is the sum of the loan you will obtain against the property's
value / cost. The LTV / LCR ratio for home loans is around 75-90 percent (i.e.,
based on the loan size, the borrower may typically secure a loan of about 75-90
percent of the value / cost of the property). In
the case of a land loan, based on the loan size, the overall LTV is set at
75-80 percent of the property valuation, which ensures that you will have to
raise the remaining 20-25 percent on your own. Therefore, you will need to make a down payment of at least 20 percent of the plot value if you are considering purchasing a plot of land for your personal use or as an investment. Fixed
Obligation to Income Ratio: Dependent on the applicant's Net Adjusted Salary, the fixed-obligation-to-income ratio is given up to 60 percent in plot loans while it can go up to 90-95 percent in the home loan. Duration
of The Loan: In contrast to land loans, the loan term of home loans is much longer. Home loans are eligible for a period of 30 years, while land loans are eligible for a maximum of 15 years of tenure. After taking a plot loan, the purchaser must also make the purchase within 2 years of obtaining the approval of the bank. Tax
Benefits: When you take out a home loan, tax deductions on both the principal amount and the rate of interest will be used. Land loans, on the other hand, are not qualified for any tax benefits. However, if you build a house on a land plot, tax deductions are possible, but only for the value of the loan taken towards the building. These benefits can be used only after the building project is finished. Home
Loan Interest Rate vs. Land Loan Interest Rate: Banks
and other lenders charge equal interest rates on both home loans and property
loans. However, the home loan interest rates are a few percentage points lower than the land loan
interest rates. Plot loans are generally riskier and thus priced higher than
home loans, where banks have a promise that, if necessary, they can sell and
recover losses quickly. Although the lender imposes similar payment charges on all forms of loans, certain small distinctions can be made on the basis of the borrower's profile. Besides, few banks also give women borrowers lower interest rates. To make it easier for you, we have categorised the difference between home loan and land loan: Purpose Home Loan: Purchase of constructed or under construction
property. Land Loan: Purchase of a plot of land only for residential purposes. Tax Benefits Home Loan: Tax
benefits applicable for both principal and interest rates. Land Loan: Tax benefits applicable to only cover under construction cost. Duration of the
Loan Home Loan: Up
to 30 years Land Loan: Up to 15 years Loan to Value Home Loan: Varies
between 75% and 90 % Land Loan: Varies between 75% and 80% Interest Rate Home Loan: Slightly
Less Land Loan: Slightly More SBP
Group believes that while
there are many similarities and distinctions between the two financial
services, a customer must have a good view of home loans and plot loans to
decide which option will be sufficient for his particular needs. As the concept
of loan involves many factors and layman may or may not be able to understand
each of them. For
any more information regarding Home loans, interest rate, premium property for
residential purposes, etc you can check our other articles. |