Indian investors are typically inclined towards buying land either purely as a good investment and for building a residence. Therefore, if you’re thinking of buying a plot, you may not qualify for a mortgage loan, but also for a land loan. Mortgage loans can be found just for the house currently built, under construction or more likely to undergo construction quickly. For funding the purchase of a plot that is vacant you’ll have to decide on a land loan instead. Even though terms, prices and operations pertaining to land loans are much like compared to a mortgage, you can find intrinsic differences when considering the 2 as outlined below:
The distinctions between land loan and house loan
Property Location and Type: Unlike mortgage loans that are available on all properties aside from their location or kind, you can find a land loan just for a plot that is residential. Additionally, “the property must certanly be found within municipal or firm limitations. Consequently, you can’t obtain money for purchasing an agricultural land, or even for buying an item of land in a village. You could go with mortgage loan, for constructing your house for the reason that bit of land, following the purchase,” says Adhil Shetty.
Lower LTV: Loan To Value (or LTV) could be the quantum of loan you could get against home. The maximum LTV is stipulated at 70% of the plot value at best while you can avail up to 80-85% funding in a home loan (90% in some cases), for a land loan. This effortlessly implies that if you should be considering buying a plot for either personal usage or as a good investment, you would need to shell away at least of 30% associated with funds from your pocket.
No Tax Benefits: Unlike a housing loan, which can be eligible how does money tree work for income tax deduction for re payment of both interest plus the principal quantity, land loans usually do not provide any benefit that is such. “You can avail taxation deductions as long as you might be constructing a residence when you look at the plot. The deduction for the reason that full situation is relevant just for the mortgage amount taken against construction, and just after conclusion for the construction activity,” informs Shetty.
Land Loan and NRIs: Non Resident Indians are a prospective section of home buyers in Asia. An extensive search is required if you are a Non Resident Indian and seeking to purchase a plot through a land loan. Almost all banking institutions try not to provide land loans to Non Resident Indians. No matter if offered, they may come at a greater interest.
Lower Tenure: the mortgage tenure for land loans is leaner in comparison to housing loans. The utmost loan tenure designed for land loans is fifteen years while for a home loan one could get as much as 30 years’ tenure. But, some NBFCs like Dewan Housing Finance provide 20-year tenure for land loans.
Cap on Maximum Loan Amount: Many banking institutions keep a maximum limit that is upper land loans. “Indian Bank and Punjab nationwide Bank, for instance, stipulate optimum loan accessibility to Rs 1 crore and Rs 50 lakh correspondingly for sale of land. Consult your bank regarding the upper limitation on loan quantity if you are looking for a big ticket loan for investing in real estate,” says Shetty before you shortlist your lender, as this can considerably affect your finances.