Know the Major Difference Between Home Loans and Land Loans

If you’re looking to make a real estate investment, you may need to opt for a home or a land loan. To make an informed choice, keep in mind that both home loans and land loans are mortgage loans. However, you avail a home loan for properties that is either under construction, already constructed or will be built soon. But, if you're looking to purchase a plot or bare land, you might be not qualified for home loans. In such a situation, you have to opt for a land loan instead.

Country's leading financial institutes offer both land and housing loans. So, before availing one of them, let's take a look at what are the significant differences to make an informed decision.

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Differences Between Home Loans and Land Loans

First, understand the usage limits of both these advances to decide which one to apply for –

1) Based on the Purpose and Location of the Property 

A housing loan can be availed even for a Tier III city or a suburban location. On the other hand, a loan for land can be availed only for plots located within municipal or corporation limits, in which you can build a residential building later with the help of housing loans.

Bear in mind, a loan for land purchase is not applicable for –

1. For agricultural and commercial purposes. 
2. Any plot within an industrial area or in a village. 

Additionally, some lenders provide a plot loan only if a borrower guarantees to begin the construction of a house on that plot within the stipulated time decided by the lender.

2) Loan to Value (LTV) Ratio 

Loan to value is the total loan amount you avail as a loan against the mortgaged property. In the case of home loans, you can avail 65%-85% of your property's value to fund your housing construction.

However, in case of a loan for land purchase, you can expect a maximum LTV of 70%. This effectively denotes that if you’re considering buying a plot purely for personal or investment purposes, you’ve to shell out a minimum of 30% of the total funds from your pocket.

3) Loan Tenure 

In a plot loan, tenures offered by lenders average up to 15 years. However, you must always check the eligibility criteria for the home loans with the help of an online eligibility calculator to avoid any unnecessary hassles down the road.

4) Tax Benefits 

In the case of home loans, you can claim tax benefits on the principal amount as well as the interest. However, this tax exemption does not apply to land loans. It is applicable only if the loan is availed against the construction of a residential property on the same plot and after the construction has completed.

Following this guide will give you a clear understanding of how to choose between a land purchase loan and a home loan. Refer to top lenders and enjoy repayment-friendly features to easily meet your financial requirements. 

Must Read: Know The Differences Between Land Loan And Home Loan