Have you ever imagined getting a house constructed right before your eyes? Would you want to decide where the kids would play, where the garden would be, and where the bedroom would be? If yes, you could do it with the help of a land loan. You can purchase a piece of land and have a home constructed your way.
Though there are plenty of beautiful houses ready for you to buy, watching a house being constructed exactly the way you want, is surely a different feeling altogether. But for that, you need to purchase land, which can create a hole in your pocket. Fret not, because you can opt for a land loan to bring your dream to life.
Here is a detailed guide on a land loan to help you understand it better.
What Is a Land Loan?
A land loan is a credit option that you can avail to purchase land or a plot for residential construction. You can take a land loan to buy a resale plot or to buy land through direct allotment. To take a land loan for house construction, your land should be within the jurisdiction of the municipality, unless the Development Authority directly allots it. You can get a land loan up to 70-80% of the plot value based on your eligibility. Moreover, the lender might ask you to submit a declaration confirming that the construction of the property would be finished in a specific period, which could vary from lender to lender. Also, the land you purchase through land loans should be non-agricultural.
Eligibility of a Land Loan
Land loan eligibility is based on the applicant’s income, financial capability, credit score, type of plot, employment, etc. Land loan eligibility might differ from lender to lender, and so it is always better to contact your lender to know about the eligibility before you apply for the land loan.
However, check out the standard eligibility criteria that usually lenders require the borrowers to fulfil.
- You should be a resident of India and within the age bracket of 18-65. The minimum and maximum age limit would differ based on the lender you take the loan from.
- You should meet the specific income level as required by the lender and should have a stable job or running the business.
- You should have a good credit score. A score of 700 and above is preferred.
- The lender could also check your credit report to analyze existing debt obligations and assess repayment capacity based on that.
How Is a Land Loan Different from a Home Loan?
While both terms are used interchangeably at times, there are a few differences between a land loan and a home loan.
- A home loan is for a house property that is under construction or is already constructed. Whereas, a land loan is for purchasing land on which you wish to construct a residential property. Therefore, you cannot buy land with a home loan and similarly, you cannot buy a home with a land loan.
- The interest rates of a home loan are usually lower than that of a land loan.
- The loan tenure of a land loan is shorter than a home loan. Usually, the maximum loan tenure for land loan is capped at 15 years.
- There are no tax benefits on land loans. You can avail tax benefits on the payment of the principal and interest amount on home loans, but not on land loans.
In case you are planning to buy a plot and get a house constructed on it, you can also check if your lender provides a composite loan. If yes, then, you can use a composite loan for both buying the land and constructing a house on it. To conclude, we have covered the important aspects of a land loan, in order to help you decide further steps in choosing the services that will suit your needs.
