Indians have started the trend of buying and selling the property, in order to enhance their investments. Contrary to the old real estate tradition today most Indian invest in house or land not for building a house but to wait for the right time and make a profit by selling it at a higher price. Both land and home loan fall under the same category; they are both applied with an intention of buying a property. Home loans are availed for properties which have already been constructed or will be constructed in the future. But land loans are made majorly for investment purposes, but can also be used for construction purposes.
Both these loans application and document procedure is almost similar, along with tenure and EMI procedures. Yet, they do share some fundamental differences in terms of rules, tax implications, and eligibility etc.
Difference in Loan’s Purpose and Eligibility
Home loans are usually availed for residential purposes, most applicants turn to a home loan, to fulfill their desire of getting a house. You can apply for a home loan for a constructed, in construction and under construction house.
Land loans are subject to multiple conditions. These plots are usually categorized residential, non-agricultural, non-commercial, within municipal or corporation limits. Most banks don’t allow a loan for investing plots in rural and industrial areas.
Both these loans can be applied by salaried as well as self-owned business owners above the age of 21 years with a stable financial condition and good repayment creditability.
Property Type and Location
Unlike a home loan, which can be taken to buy houses in almost any part of the country? Land loans are not granted for certain geographical backgrounds certain specific category of land. Banks don’t provide loan for buying agricultural land as well as a land of any village in the rural area. But applicants can take a home loan to build a house in both these areas.
No Tax Benefits
Unlike housing loans, that can be used in a tax deduction for payments of principal amount and interest rate. Users don’t get any such facility in Land loans. In order to avail this facility user needs to construct a house on that plot. Even if the borrower starts the construction, he will only be seen eligible for this facility when the construction is fully complete.
Home Loan Interest Rates are usually lower than the interest rate on land loans. Home loans also come under CLSS, which is a part of Pradhan MantriAwasYojana, which offers multiple benefits for the financially weaker section of the society.
Banks know that most people buy lands for investment purposes, so they tend to make some profit out of them by applying higher interest rates. Plus some banks also apply interest on the plot depending on its location and future potential of sales.
Housing loans have longer tenure periods compared to land loans. The maximum home loan tenure can go up to 30 years whereas most land loans don’t get tenures periods of more than 15 years. However, there are some NBFC’s which offer 20-year land loan tenures like Dewan Housing Finance.
Cap on Loan Amount
Given the popularity of land investments, most banks keep a higher maximum limit on plot loans. Punjab National Bank and Indian Bank, for instance, provide loan amount from 1 crore to Rs 50 lacs for investing in a land. If you are interested in making a heavy real estate investment than land loans are the best option for you.
Land Loan is often mistaken to be part of a home loan, but it lacks multiple offers of Home Loan. However, it definitely not customers mistake as most banks treat it like a part of a home loan. All the conditions mentions above are only applicable to land loan; however these conditions are subject to change depending on the trends of the market, so ensure to have a work with your bank officer before investing either of these loan policies. Applicants require the same documents and go through same verification procedure for applying for these types of loans. So despite these differences, you will be requiring and following the procedure no matter which loan you apply for. The key difference is mainly the tax benefits that you can avail through a home loan.