Many people may not notice the distinction between buying a new house and buying a plot of land. Both purchases are commonly referred to as purchasing property; nonetheless, some differences must be addressed when obtaining financing. A housing loan helps you buy an under-construction or resale property, whereas a land loan helps you buy a plot of land on which you want to build a house. A house loan cannot be used to purchase a parcel of land. Similarly, a land loan cannot buy an unfinished or ready-to-move-in property. You can also check out land in Tambaram if you’re on the verge of buying a property in the near future.
Lenders consider land loans and home loans differently when obtaining a loan to purchase a property. If you intend to buy land to build a house, you need to understand how a land loan varies from a home loan.
While NRIs may readily obtain a house loan, only native Indians can get a land loan since this loan is not available to NRIs.
Home loan lending guidelines are incredibly varied regarding the types of properties that would qualify for a loan. However, financing is extremely limited and confined to particular types of land when it comes to land. Lenders often finance lands given by development agencies. Multiple builders are now developing projects that include land allotments; such land can also be funded if the lender legally approves it. Because lenders primarily lend on residential land, land use status becomes crucial. As a result, you may not obtain a loan to purchase agricultural or commercial land in Tambaram.
Though certain loans are available for purchasing agricultural property, they are not widely available to all borrowers since they are geared at specific borrowers such as marginal farmers or landless labourers.
Loan-to-Value Ratio (LTV)
The loan to value refers to the amount of a loan that may be obtained against the property. The LTV of a house loan is higher than that of a land loan since it is tied to the acquisition of residential collateral. The LTV for loans under 30 lacs might be as high as 90%, but it is only 70% on land loans. So, whether you want to acquire land for personal or financial objectives, you’ll need to put down a minimum portion of the purchase price. Instead of land loans, Tenure Housing loans like flats in Ayanambakkam have a significantly more extended loan period. The maximum period for a home loan is 30 years, but the full term for a land loan is 15 years.
The individuals who take out a home loan on a completely completed residential property can obtain tax benefits on interest and principal payments. In contrast, repayment of a self-occupied house loan principal and interest payment are eligible for income tax deductions under sections 80C and 24b, respectively.
However, land loan applicants cannot receive tax benefits. In the case of a plot, the only tax deduction available is for the amount borrowed to construct it. This is by far the most crucial drawback for persons considering a land loan since, even though it is meant for the construction of a home, payments paid toward the repayment are not eligible for an income tax credit. However, if you commence building on the purchased land in Tambaram, you will qualify for tax breaks on that portion of the loan. A percentage of the loan used to build a house may be deducted from your taxes. The deduction is only available in the year the construction work is completed.
The interest rate
Land loans offer higher interest rates than house loans. Home loans such as apartments in Ayanambakkam are now accessible for around 7.50 percent per year, while land loans are available for between 8% and 10% per year. Land loans are riskier than home loans since banks have collateral that can be rapidly sold and losses recovered in the case of residential loans.
While a house loan can be obtained for a property outside of the municipal area, land in a village or industrial area is not normally eligible for a land loan. It should be located inside the corporation’s or municipality’s boundaries.
Composite loan for construction
A composite loan is a loan provided by a lender to acquire a plot of land and build a house within a specific time frame. You can receive a loan for 70-75 percent of the land’s worth.
One of the most crucial stipulations of a composite loan that clients are unaware of is that this credit comes with a construction time constraint. Depending on the lender, borrowers must commence building within three to five years. The construction portion of the loan is given only once the borrower satisfies certain restrictions. When applying, they must present a cost estimate for the building, an Approved Plan from the local authorities, and a chain of documentation for the site. The construction loan will be given until the foundation work on the land has been finished. Until the construction of the building begins, the borrower must pay a higher interest rate, similar to a land loan.
Regardless of the differences between house and land loans, the application process and loan interest rates are the same. A home loan and a land loan offer advantages, but the best plan is to pick one depending on your needs and ability to repay. Your credit score is critical whether you are asking for a house loan or a land loan. Understanding the purpose and characteristics of a house loan and a land loan will help you determine which is most suited to your needs, whether you want a ready-to-move-in residential unit or one that will be developed to your specifications later.