Two women, Ramya and Sonia, apply for a land loan. Ramya wishes to use the piece of land to construct a house for herself and her family in the heart of Mumbai. On the other hand, Sonia wants to generate income from the land by converting it into a farming paradise. The former’s application is approved, while the latter’s is rejected.
So, where did Sonia go wrong? She was unaware of the rules for getting a land loan in India.
Plot loan rules: What you need to know
Here are two important rules to know before you apply for a land loan –
• Purpose and location of the property
Where housing loans can be taken to purchase a house regardless of its type or location, land loans come with certain restrictions. For instance, you may get a land loan only for residential purposes, not commercial use.
Moreover, the location of the plot must fall within the state’s municipality or corporation limits. Consequently, you cannot use these loans to buy an agricultural land, a plot in the village, or one located in an industrial area.
• House construction timeframe
Another rule for availing of a loan for plot is to have definite plans to construct a house on that plot. The lender will grant the loan only if you promise to begin construction within a stipulated time period from the date of loan disbursement.
Additional Read: Loan for Buying Plot? Here’s All You Need to Know!
How are land loans different from housing loans?
Besides the rules mentioned above, there are other factors that distinguish a land loan from a home loan.
• The LTV ratio
The LTV ratio is the percentage of the land loan that the lender will finance, with the rest paid by the borrower. Since land loans are considered to be riskier than housing loans, they are usually offered with a lower LTV ranging from 65% to 75% compared to the LTV ratio on housing loans, which may go as high as 90%.
Note – The LTV may even be lower for plots purchased in smaller towns or cities.
• Tax deductions
Where both plot loans and housing loans offer tax benefits, the former has certain conditions attached. For instance, you are eligible for tax benefits on both the principal and interest payments for a housing loan. However, for land loans, you can avail tax deductions only for the amount taken against construction, only after it is complete.
Additional Read: How Plot Loan Is Different From Home Loan
Over to you
Whether you need a home loan, a land loan, a loan for home renovation or expansion, you can avail them all with Tata Capital, India’s leading lending institution. Go through our home loan eligibility and documentation section before you apply for a loan online. We also give your an easy-to-use home loan EMI calculator on our website that will help you understand your monthly obligations. Get in touch today!