Property and Housing Loans both are commonly known products, but these two differ. The first difference is the Housing Loan interest rate; it is not just limited to the different interest rates. The eligibility criteria for these loans are also quite different. If you are planning to buy land, you should not approach a situation similar to a Home Loan. Read on to learn more about how a Housing Loan differs from a Land Loan.
In the case of Home Loans, banking institutions have the same processes for all individuals. Both foreign nationals and Indian citizens. However, a Land Loan cannot be availed by a foreign national.
The rules that govern Housing Loans and their interest rates are pretty flexible. Almost all kinds of houses, bungalows, and flats qualify for a Home Loan. However, there are a lot of restrictions on the type of land for which you want to get a Land Loan. The lending institutions help people with Land Loans only when the development authority allocates the land. However, you have to go through a strenuous process to obtain Land Loans.
You can try contacting a banking institution if you’re buying a plot or land for residential purposes. However, the banking institution might not give you the loan if you want to use the particular piece of land for agricultural practices or commercial purposes. However, you might try to reach out to the banking institution and explain your case to avail of such loans.
Location of the Property
The location of the house and the land is an important aspect of getting a loan. However, lending institutions treat the house’s location as a normal checkbox. Therefore, you might get a loan even for a home located on the city’s outskirts. However, the location of the land plays a critical role in getting a Land Loan.
You may not get a Land Loan if you plan to buy land in any industrial area or on the city’s outskirts. The banking institution prefers to give loans to people planning to buy a plot within the city’s premises or the municipal limits. Also, the representative from the banking institution should be able to identify the piece of land you want to buy. Hence to strengthen your case, ensure that you have a boundary wall.
In the case of Home Loans, the banking institution agrees to lend up to 90% of the house’s value. However, the amount given out to borrowers of a Land Loan is lower than 90%. In most cases, you will receive an amount equivalent to 70%-75% of the land’s value as a Land Loan. Some lending institutions might not go beyond 60% of the value.
In India, the Housing Loan interest rate ranges from 7.99% to 8.50% and this is the case with Kotak. Whereas, the Land Loans rate is always 0.5% to 1% higher than that of Home Loans.
Also, you can claim a few tax deductions on the amount you pay as interest for your Home Loan. But this is not available with Land Loans. However, if you start construction on that plot, you can enjoy a few tax benefits.
The Loan Tenure
The tenure of the loan is a critical factor when it comes to picking the loan. The borrowers calculate their monthly EMIs and adjust their savings based on their tenure. Hence, the longer the loan tenure, the more time borrowers get to repay the money. This allows the borrowers to reduce the cost of their EMIs.
Home Loans generally have a long tenure. Most banking institutions offer a loan tenure of up to 30 years. Hence, the borrower can pay the principal and the interest across these years. However, the loan tenure is up to 15 years in Land Loans. In this case, you will have to increase the amount of your EMIs to repay the loan within the tenure.
The Bottom Line
You must understand the difference between a Land Loan and a House Loan. You must weigh your options if you plan to buy land to build your own house. Compare the cost of building a home to buying a home before you make any decisions. Consider factors like eligibility, and interest rates before making a choice.
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