Differences between home loan and land loan

Loans for home and land may seem to be the same since both are part of real estate. But in financial terms, home loan and land loan differ in a few major areas.  Banks and Non-banking financial institutions (NBFCs) provide both loans. Also, despite certain differences, the rules for processing the loans are exactly the same.  Let us look at the differences now;

Purpose of the property:

 Home loans can be availed for houses that are ready to sale, under-construction, or approved for construction in the future. Such loans are given for any property inclusive of all locations.

However, land loans are only given for residential properties located within a Municipal or Corporation area. The property has to be a non-agricultural and a non-commercial property.

Tenure of the home loan and land loan:

Home loans can be repaid over a period of 30 years maximum. Land loans, on the other hand, have a maximum tenure of 15 years.

Lower Loan-To-Value (LTV) for land loan:

LTV ratio is 75-90% for homes whereas for a land loan is 75-80% of the property value. This means that one can get a home loan of about 90% of the value of the property. However, for a land loan, the buyer has to make a down payment of about 20% of the property value. In smaller cities, LTV is lower for land loans.

TAX:

If you take a home loan, you can avail tax deductions in repayment of both principal and interest amounts. But, for a land loan, tax deductions are applicable only on the amount taken for construction on the plot. The tax deduction would start only after the completion of the construction.

A few more key differences;

  • Home loan interest rates are also a few points lower than a land loan.
  • The verification of documents for a land loan is much stricter than in home loans.

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