Difference Between Plot Loan and Home Loan
Many individuals may not see the difference between purchasing a new home and buying a plot of land, and both purchases would be referred to as buying property in common usage; nonetheless, there are differences that must be considered while seeking financing.
A housing loan assists you in purchasing an under-construction or resold property, whereas a land loan assists you in purchasing a piece of land on which you intend to build a home. A home loan cannot be used to acquire a plot. Similarly, you cannot get a land loan to buy an unfinished or ready-to-move-in property.
Land Loan Vs Home Loan: Loan to Value (LTV)
The amount of a loan you can acquire against property is referred to as the loan to value (LTV). Because a home loan is related to the acquisition of residential collateral, the LTV is larger than that of a plot loan. For loans under 30 lacs, the LTV can be as high as 90%, however, it is limited to 70% on plot loans. So, whether you're thinking about buying a piece of land for personal or investment purposes, you'll need to put down a minimum amount of the purchase price.
Tenure
In opposed to land loans, housing loans have a much longer loan term. Home loans have a maximum term of 30 years3, whereas land loans have a maximum term of 15 years
Land Loan Vs Home Loan: Tax Advantages
In the case of a house loan taken out on a fully constructed residential property, applicants can receive tax benefits on both the interest and principal payments; however, there are no tax benefits available to plot loan applicants. The only tax deduction possible in the case of a plot is for the amount borrowed to build on it.
This is by far the most significant disadvantage for individuals considering a land loan because, despite the fact that it is intended for the construction of a home, you are not qualified for an income tax deduction for payments made toward the payback. If you begin construction on the bought plot, however, you will be entitled for tax benefits on that portion of the loan. The portion of the loan that is utilised to build a house might be deducted from your taxes. Only the year in which the building activity is finished is eligible for the deduction.
Land Loan Vs Home Loan: Interest rate
When compared to home loans, plot loans have higher interest rates. Home loans are currently available for roughly 7.50 percent per year, while plot loans are currently available for between 8% and 10% per year. Plot loans are riskier than home loans because banks have collateral that they can quickly sell and recover losses if necessary in case of home loans.
Difference Between Land Loan and Home Loan
Home Loan | Plan/Land Loan | |
---|---|---|
Purpose | Purchase of a property or which is in the process of being built. | Purchase of a plot of land only for residential purposes |
Tax Benefits | Tax benefits applicable for both principal and interest payments. | Tax benefits applicable only to cover construction cost. |
Tenure | Up to 30 years | Up to 15 years |
Loan to value | Varies between 75 to 90% | Varies between 70 to 80% |
Conclusion
Despite the variations between home and land loans, the application process and loan interest rates remain the same. Both a home loan and a plot loan have advantages, but the best strategy is to choose one based on your demands and payback capacity. Whether you are applying for a home loan or a plot loan, your credit score plays a crucial role in the process.
Understanding the purpose and features of both a home loan and a plot loan can help you decide which one is best suited to your needs, whether you're looking for a ready-to-move-in residential unit or one that will be built to your specifications later.