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Real Estate Loan: Types, Terms, And Lenders

April 2, 2022

Are you looking to invest in real estate? If you are, it is essential for you to understand how loans work and their terms and lenders. This blog will discuss exactly that. From loans against a property to commercial loans, this blog will discuss some of the most important types of real estate loan. Read on!


Real estate is a great investment avenue, with impressive returns on investment. The Indian real estate sector is thriving, contributing majorly to the country’s Gross Domestic Product. From an investment perspective, real estate is also performing well in the market and is known to be one of the safest and most secure investments.

There are many ways to purchase a real estate property. You do not have to necessarily pay in full when you buy a property. You can always make a down payment and take a loan and complete the payment in installments over the next few years. In this blog, we will discuss what a real estate loan is and the different types of real estate loan. Before that, let’s define and talk a little more about real estate loans.

So, what is a real estate loan? A real estate loan is a mortgage taken for purchasing a property. The property can be residential, commercial, industrial, land, and more. When you take a real estate loan, you will repay your lender – banks and other financing institutions in most cases – in installments, along with an interest that complies with the market rate. To avail a real estate loan, you have to approach a financial institution that offers and deals with loans and apply for one. The institution will, in turn, look into your financial status and check various factors, including and most importantly, your credit score, before approving a loan.

Once your loan is approved, you will sign a legal document called the mortgage note, which is a promissory note citing that you will repay the loan along with the interest (and other costs) over the agreed period of time. If you fail to repay the loan in the agreed time frame, based on the type of loan and the policies of the lending institution, you will have to face the repercussions.

Based on the kind of property you are purchasing, there are different types of real estate loan. Let us discuss the same in the coming section.

Types Of Real Estate Loan

If you are looking to invest in a real estate property, there are many types of real estate loan you can choose from. Each one has its own specific features and benefits. In this section, we will discuss 6 of the most popular types of loans available for the purchase of real estate –

  1. Plot loans
  2. Housing loan
  3. Loan for commercial purchase
  4. Loan for construction
  5. Loan against property (LAP)
  6. Top-up loans

1. Plot loans
These are loans exclusively for the purchase of plots. If you want to buy land and carry out some development activities on the plot you purchase, then a plot loan will provide you with the perfect support for your land investment. Plot loans are usually extended by banks and other Non-Banking Financial Companies (NBFCs). Tax benefits on these loans are usually limited and are available for you only if you meet the desired eligibility criteria. It doesn’t matter if you are self-employed or a salaried individual. You can avail a plot loan with a good financial status and credit scores.

2. Housing loans/home loans
A home loan is a loan taken to finance the purchase of a developed property, usually a house. Home loans typically have lower interest rates than other types of real estate loan, making them a popular choice for Indian borrowers. The eligibility criteria for home loans are more stringent, with lenders usually taking into consideration various factors, including your age, income, whether you are salaried or self-employed, your financial situation, savings, other loans pending, credit score, pre-owned assets, and more.

Are you still confused between a home loan and a land loan? Learn more here.

3. Loan for commercial purchase
A commercial property loan is a type of real estate loan that is used to finance the purchase or construction of a commercial property, such as an office building, retail space, or industrial warehouse. Commercial property loans typically have higher interest rates than other types of loans, but they can be a good option for borrowers who need the flexibility to use the property for a variety of purposes.

4. Loan for construction
If you are looking to construct a new house, then a construction loan is one of the best types of real estate loan you can avail. A construction loan is a loan specifically designed to finance the construction of a new home or another type of property. These loans typically have higher interest rates than other types of loans, but they can be a good option for borrowers who are unable to obtain traditional financing. If you want to take a construction loan, then you need to provide the financing institution with the construction estimate along with the other necessary documents at the time of application. Your loan will be approved if you meet their criteria.

5. Loan Against Property (LAP)
A loan against property is a loan that is secured by your property as collateral. This type of real estate loan can be used for a variety of purposes, including business expansion, personal expenses, or home improvements. The asset that is pledged as collateral can either be land, residential property, as well as other commercial properties. Until the loan taken against the property is repaid in full, the property will be considered collateral.

6.Top-up loans
This type of real estate loan is also called the second mortgage. This is because financial institutions like banks and other NBFCs approved to lend money often issue loans for properties that are already under a loan. This loan is given to the borrower based on their financial status, loan repayment history, and of course, their credit score. Once the top-up loan is approved, the borrower will have to pay the EMI (Equated Monthly Installments).

These are some of the most popular types of real estate loan issued in India. You need to determine your investment goal, the kind of development plan you want to take up on the land/property, and also your budget and financial position, along with your income, in order to plan and apply for one of these loan types.

Standard terms for real estate loan

Buying real estate has become easier than ever before, thanks to the concept of taking loans and the availability of a wide range of loans in the financial market. You do not need to have a lot of savings or liquid cash to buy real estate. With a loan, it is as easy as giving around 20% as a down payment and registering the property – the financial institution lending money will have the expenses covered. You will only have to pay an EMI along with interest to the bank for the term of the loan.

The real estate loan term is the window offered by lending banks and other financial institutions for the repayment of the loan borrowed. A few loans can go up to 30+ years, while a few short-term loans can get done in as short as 10 years – this term also depends on the amount of money you borrow, which in most cases will be a large sum, considering how heavy an investment real estate usually is.

It is, however, noteworthy that the loan repayment window for commercial real estate is much lesser than that of residential real estate. The term for commercial real estate loans ranges between 5 and not more than 20 years, while residential real estate has a longer loan repayment window of up to 25 to 30 years. In the case of a residential loan, it is recommended that the individual maintains a good credit score. In the case of a commercial real estate loan, the business should have a clear financial track record.

If you are looking to invest in land, you can do so at ease by taking loans for plots. What is more important is the land developer you buy land from. G Square is undoubtedly the best land developer you can buy from if you are looking to invest in plots in Chennai, Bengaluru, Coimbatore, and more. Being South India’s largest and Tamil Nadu’s no. 1 land developer, we take care of the hunt and registration of the desired land end-to-end. For more details, visit our website.