Differences between home loan and land loan

Differences between home loan and land loan

Few people know that a bank offers housing loans for apartments or for buying land and building a house on it. But many of us are in the habit of investing in land as it appreciates significantly over time. This is the Indian way to invest more money in land and gold than in other places to invest! So how do you get a loan to buy just a plot of land as an investment? Land loans are the answer.

In general, most of the loan terms and repayment methods are very similar to those of a home loan, but there are still a few minor differences that can be missed in the fine print.

Home loans can be opted for only when the purchase is for a house that has been built, is under construction, or is guaranteed to be built in the near future. The third condition is the complicated one where banks offer a home loan that requires the borrower to start construction of a house on the land purchased with the loan amount within a certain period of time.

Nationalized banks like SBI offer home loans to owners who buy land and guarantee that the land will be used to build a house within the next 2 years of purchase. Private corporate giants of the banking sector like ICICI prefer the owners to complete the construction of a house in the purchased land within two years! It is up to the buyer to decide which is a financially feasible option and decide on it.

If you plan to buy the land only as an investment, then the land loan comes into play. The general conditions, required documentation and repayment options are the same, but the following points should be taken into account, which are indicated:

Land type

A land loan can only be purchased on a residential plot. Commercial allotments and agricultural land cannot be purchased with a loan. The plot chosen must also be within the corporation or municipality boundary – meaning rural plots are out of the question!
The LTV value is lower

Loan to value is the total amount that would be covered by a loan when buying a property. Housing loans cover 80% or more of the total value of the property, without taking into account registration and documentation costs. On the other hand, land loans will cover less than 70% of the total cost of the land, which equates to more than 30% of the cost incurred by the buyer initially.

Maximum loan ceiling

The maximum loan amount sanctioned for housing loans is 60 times the monthly salary of an individual, provided he has no debts. With a land loan, the maximum amount is limited to a certain amount by the banks, regardless of what your salary is. This depends on the bank and can be a deal breaker for many!

Most of the process remains the same, but these restrictions make buying land for investment a bit of a cumbersome approach if a loan is chosen. Try to shop around different banks and get the best deal. A good loan repayment history also helps your cause a lot!

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