Home loan versus land loan

Property investments are of various types, for instance some may buy a bungalow, a house, or an apartment, others may purchase a plot of land. Both are considered as property investments, but the way they are treated is different. Similarly, the loan taken for a house is different from the one taken for purchasing a piece of land. Here is how home loan is different from land loan.

See also: Home loan vs personal loan: Which one should you choose?

 

Location

• In case of home loan, the property for which you are taking the loan can be at any location.
• In case of land loan, the piece of land should be located within the municipality.

 

Availing offer

• Home loans are taken for under-construction, ready-to- move, resale, or self-constructed properties.
• Land loans are availed for plot purchase that can be kept as an investment or for building houses. Note, this cannot be used for buying an agricultural land. Also, the land chosen for purchase should not be located in an industrial area, or a rural area.

 

Differences in the LTV/LCR ratio

• When it comes to home loan, the Loan-to-Value (LTV) by Loan-to-Cost ratio (LCR) is around 75%-90%, where the home loan borrower will get a home loan of around 75%-90% of the property cost, depending on the loan. In this case, down payment to be made is a minimum of 10%.
• When it comes to land loan, the Loan-to-Value by Loan- to-Cost ratio is around 75%-80% where the home loan borrower will get a home loan of around 75%-80% of the property cost, depending on the loan. In this case, the down payment to be made is a minimum of 20%.

 

Loan tenure

While the tenure of the home loan is long and can be anywhere around 30 years at least, the tenure of land loan is short and should be repaid within a maximum of 15 years.

 

Tax benefits

• On a home loan, one can avail tax benefit on both principal repayment and interest payment. If there is a joint home loan taken, then both the husband and the wife can claim income tax deduction on the home loan separately, for the principal and interest components.
• However, there is no tax benefit associated with the land loan. You may get a tax benefit if you construct a house on the land but that too will be for construction. This can be available only after the construction is done.

Note, these are some of the differences, the common points between home loan and land loan are given below.

• Age
• Eligibility criteria
• Credit score
• Due diligence performed by the home lender
• EMI options

 

FAQs

Is a piece of land included in a home loan?

No. A home loan can only be availed for buying a house.

Can a borrower convert his home loan to land loan or vice-versa?

No. A borrower should apply for a specific loan and can’t transfer one loan to another. In fact, if a person wants a loan to build a house on a piece of land, then he should apply for home construction loan.

What is the LTV LCR norm for plot loan?

The LTV LCR norm for plot loan is 75%-80% of the plot’s value.

What is LTV in home loan?

A Loan-to-Value (LTV) ratio is the percentage of the value of the property a bank or a financial institution can lend to a borrower who is buying a property.

Can we take land loan and home loan together?

For this, you can take the home construction loan where the mortgage permits you to buy a piece of land and construct a house under a single loan.

Got any questions or point of view on our article? We would love to hear from you. Write to our Editor-in-Chief Jhumur Ghosh at [email protected]