Do you intend to lease or purchase a new property? If so, there are several financial solutions available in the market. But there is one very significant point that we must not overlook: When applying for a loan to purchase real estate, the lender will treat a home loan and a land loan differently. Yet, considering such choices raises relevant questions. Like this: What distinguishes a land loan from a home loan? Discover the main differences between a land loan and a home by reading on.
We assure you that many people still believe both loans are comparable. These loans do differ just minimal. These such difference can get proven extreme vital for the investors.
What is a Home Loan?
A home loan can be defined as a sum of money borrowed from banks or other financial entities. This notion of a home loan also applies to mortgage loans.
This loan is being used to buy a home or other property. The borrower can choose an appropriate interest rate plan. These home loan interest rates are typically:
- Fixed
- Floating
- Partly fixed.
- Partly floating.
After taking out a home loan, you may potentially qualify for an income tax exemption. It’s crucial to speak with your accountant to get further information on tax exemptions.
How Do Land Loans Work?
Loans for land now differ from loans for homes in one way. A borrower can use this kind of loan to make money to buy a piece of land.
Banks and other financial institutions have this money accessible for purchase. There are three basic forms of land loans:
- Raw
- Improved
- Unimproved
Loans secured by land may be a versatile investment. The land can be used for residential purposes, which is important. However, the application process for a land loan is a little more challenging than for a mortgage.
Loans for homes and loans for land: Similarities
You might be asking why there is such a stir around the question of a home loan vs a land loan. Despite the apparent simplicity of the definitions, there are some commonalities.
The following details for both home and land loans are essentially the same:
- Applying procedure
- T&C
- EMI choices
Both loans receive applications of a similar form and style. Yet, compared to housing loans, the term of land loans is shorter.
Loans for homes and loans for land: Dissimilarities
Loans for homes and loans for land have different prospects. Let’s quickly understand these possibilities.
Eligibility criteria for citizens
In India, both NRIs and residential citizens can apply for home loans. NRIs can get a home loan easily, but when it comes to land loan, there is a straight no. Indian residents can only avail land loan. NRIs are not eligible for availing Land loan.
Eligible Property
When it comes to the kinds of properties that can be used as collateral for a loan, home loan lending regulations are extremely lenient. Yet, lending is extremely limited when it comes to land and is only allowed for a few categories of land.
Lenders typically provide funding for land that development authorities have allotted. These days, there are numerous builders creating different projects where land allotments are made; such land can also be funded, subject to lender legal approval.
Since lenders primarily give financing for residential land, the use of the land becomes crucial. As a result, you might not be able to receive a loan to buy commercial or agricultural land. Nearly all homes that are finished or under construction are qualified to meet the requirements for a mortgage. The home loans for residential spaces are more flexible than land loans, which is important.
Land loans, on the other hand, are restrictive. They cover kinds of land. The following criteria must be met for land to qualify for loans:
- Residential plot
- Non-commercial plot
- Unproductive land
- Inside the corporate boundaries
- Outside of a settlement and an industrial area, falling
Moreover, home loans are available for properties around the nation.
Maximum Amount of Loan
90% of the entire cost of the property might be covered by a home loan if you wish to purchase a new home. Thus, you need less cash on hand to purchase a new home. House loans can be very helpful in these situations because they provide a bigger initial investment cushion.
A larger initial payment is required if you wish to purchase a new land piece. Theoretically, land loans might pay for 75% of the cost of the entire property.
Interest Rates for House Loans and Land Loans
Both loans are available from banks and financial institutions at rates that are quite similar. Yet, you can anticipate paying 0.75% more on average for land loans than for mortgages.
Moreover, land loans have a maximum term of 15 years. Customers who take out home loans can benefit from forgiving 30-year payback terms.
Comparison: Home Loan Vs. Land Loan
| Parameter | Home Loan | Land Loan |
| Property limits | No limits | Under corporation limits, away from villages and industrial area |
| Purpose | Under-construction or constructed home | Plot to build a new home from scratch |
| Tax benefit | Yes | No |
| LTV | 75 – 90% | 70 – 75 % |
| Eligibility | Residents, NRIs | Residents |
Conclusion:
Now you know the difference between a home loan and a land loan very well, so it is very important to connect the right lender. HDFC Bank can help you to get the loans at it best rates. Make sur that you invest and explore wisely.
