How is land loan different from home loan?

There are a good number of people who are looking at buying a piece of land and then constructing the dream home on it. And this is not without a reason. Building a home all by yourself, using your own design and layout will certainly give you immense satisfaction. The process of execution has also become easier,especially considering the fact that there are several banks offering land loans at attractive interest rates. However, sometimes even if you wish to construct your home, you cannot do so simply because your finance is not sufficient to support your dream. In all such cases, you must not worry as there are plenty of options in the form of studio apartments, 1, 2 and 3 BHK homes, fully furnished flats, etc. Plus, there is a help in the form of home loans. For complete details on different types of home loan and the information on land loans, you can refer to Housing.com, the one stop solution for all your property needs.

Let’s now have a look at some of the basic differences and similarities between the land and home loan. This will not only serve as a guide for you but will also be a great help to decide on the type of credit that you would want to avail.

Category Land Loan Home Loan
Down payment The down payment amount or margin money that needs to be paid upfront for land loans or loan against plot is comparatively higher and is generally 30% to 40% of the total value. This effectively means that an individual has to shell out 20 lakh rupees for a land worth 50 lakhs. The upfront payment for home loans is generally lower. For a home worth 20 lakh rupees or lower, the down payment amount is only 10% (2 lakhs), for home worth 65 lakh rupees and the loan amount of up to 50 lakhs, the margin money is 20% and above that it is 25% to 30%. The margin money may also differ slightly depending upon the lender.
Preconditions There are several preconditions when it comes to availing a loan against a piece of land. You cannot get a land loan in case the plot is not under jurisdiction of municipal corporation. Also, it is not possible to get a loan for purchasing agricultural land. You can only get loans for nonagricultural plots or piece of land. There is one precondition for home loans and that is the flat must be located within corporation or municipal limits.
Documentation and Income Qualification While, the basic set of documents for residential and identification proof are similar for both land and home loans, the income qualifications are a little stringent when it comes to land loans. In general, you will have to furnish IT return for 3 years along with bank statements for last 12 months. For home loans, if you are a salaried person you will have to submit form 16 or IT return for 2 years along with your 6 months bank statements and last 3 months salary slip. If you are a business person then you will have to submit 3 years IT return plus 6 months bank statements.
Income tax benefits There are no tax benefits for land loans. The tax deductions can be availed only if you are constructing a home on the purchased nonagricultural land. You can avail the tax benefits for both the principal and interest amount repaid on home loans.
Tenure Most banks keep the land loan tenures limited to 10 to 15 years. Most private, public sector and co-operative banks along with housing finance companies have kept the maximum tenure for housing loans at 25 to 30 years.
Upper limit The upper limit on plot / land loans is 1 to 2 crore rupees. There is no such limit for home loans.

Conclusion – The loan, irrespective of it being a land or home loan is a help to pursue your dream. Which loan you would want to go for will depend upon your need, requirement, eligibility, affordability and host of other factors.