Home Loan Vs Land Loan: What’s the Difference?
Whether you’re a first-time homebuyer or not, a loan is an important thing you should always know and consider before making a purchase. Many buy plots of land either for investment or to build a home. This is when the confusion of applying for a home loan or a plot loan arises. While buying a home or plot of land might not seem all that different to many, as you’re essentially buying property in both cases, there are some differences when it comes to the loans part of it.
Basics of a home loan and land loan
A home loan is typically available for properties that are either under construction, for ready properties, or a residential property expected to be constructed in the future, whether it’s a house or an apartment. On the other hand, a land loan, also known as a plot loan, is availed when purchasing a plot of land that is going to be used for building a house or for investment purposes. The land must be solely used for residential purposes.
First, the similarities
Before getting into the differences, you should consider how a home loan and land loan are similar to each other. For instance, whether you apply for a home loan or land loan, the due diligence process is basically the same. Due Diligence is a process of research and analysis where the lender makes an informed decision whether to lend money to the borrower or not.
Another key similarity is the eligibility criteria. This is more or less the same irrespective of what loan you apply for. Similarly, interest rates and the overall application process won’t differ all that much either. And, of course, a factor that will play an important part in the application process is your credit score. This will be given importance whether it’s for a home or plot loan.
But how are they different?
One of the key differences is the location. With a home loan, you can buy a property anywhere of your choosing. This isn’t the case for a land loan. With a land loan, the property must be located within the municipality or corporation limits. This will be of key importance to keep in mind as you search for a home in a location that will keep you eligible for the loan you require.
While the tenure for a land loan is a maximum of 15 years, the tenure for a home loan is much longer, going up to 30 years. If repayment is a big factor, this point is something to take into careful consideration. Similarly, if you’re availing of a loan thinking of the tax benefits, you should note that tax deductions can be availed with a home loan, but not a land loan. Tax deductions are only eligible for a loan that’s been taken to construct a property on a plot. The tax deduction can only be claimed after the construction has been finished.
There are several differences in the two types of loans such as an NRI being able to get a home loan, but only a resident Indians being able to get a land loan. A land loan entails that the land cannot be located in an industrial area or village and cannot be used to buy agricultural land. But with a land loan, you can buy properties from government developmental authorities, from existing cooperative housing societies/apartment owners’ associations, or homes built by private homeowners.
Before buying property, ensure you’re well-informed so you can make the best decision that will prove the most beneficial to you in the long run!