Indian investors are typically inclined towards buying land either purely as a good investment or even for building a residence. Therefore, if you should be thinking of buying a plot, may very well not be eligible for a mortgage, however for a land loan. Mortgage loans can be obtained just for the house currently built, under construction or prone to undergo construction quickly. For funding the acquisition of a vacant plot, you will need to opt for a land loan instead. Even though the terms, rates and operations associated with land loans are much like compared to a mortgage, there are several intrinsic differences when considering the 2 as outlined below:
The distinctions between land loan and home loan
Property venue and Type: Unlike mortgages that are available on all properties aside from their location or type, you could get a land loan just for a domestic plot. Additionally, “the home must certanly be found within municipal or company limits. Consequently, you simply cannot get capital for purchasing an agricultural land, or even for purchasing a piece of land in a town. You could buy a true mortgage loan, for constructing your home for the reason that little bit of land, following the purchase,” claims Adhil Shetty.
Lower LTV: Loan To Value (or LTV) may be the quantum of loan you could get against a residential property. The maximum LTV is stipulated at 70% of the plot value at best while you can avail up to 80-85% funding in a home loan (90% in some cases), for a land loan. This efficiently ensures that if you should be considering purchasing a plot for either personal use or as a good investment, you would need to shell a minimum out of 30% associated with funds from your pocket.
No Tax Benefits: Unlike a housing loan, that is qualified to receive income tax deduction for payment of both interest plus the principal amount, land loans usually do not provide any benefit that is such. “You can avail taxation deductions only when you might be constructing a property when you look at the plot. The deduction for the reason that instance is relevant limited to the mortgage quantity taken against construction, and just after conclusion of this construction activity,” informs Shetty.
Land Loan and NRIs: Non Resident Indians are a definite possible section of home purchasers in India. If you’re a Non Resident Indian and trying to buy plot through a land loan, a comprehensive search is needed. Most of banking institutions do not provide land loans to Non Resident Indians. No matter if offered, they might come at a greater rate of interest.
Lower Tenure: the mortgage tenure for land loans is leaner in comparison to housing loans. The utmost loan tenure available for land loans is fifteen years while for a mortgage one could get as much as 30 years tenure that is. Nevertheless, some NBFCs like Dewan Housing Finance provide 20-year tenure for land loans.
Cap on optimum Loan Amount: Most banks keep a maximum limit that is upper land loans. “Indian Bank and Punjab nationwide Bank, for instance, stipulate optimum loan accessibility to Rs 1 crore and Rs 50 lakh respectively for sale of land. Consult with your bank from the top limitation on loan quantity before you shortlist your loan provider, since this can considerably influence your money if you’re in search of a huge admission loan for purchasing real-estate,” claims Shetty.