A Few Factors about Land Purchase Loan
Investors in India are traditionally inclined to buy land for an investment or building house. A land loan is only available for buying land for constructing a house on it. Land Purchase Loan is also a part of the Home Loan, which is available for the house already built, under construction or going under construction soon.
If someone wants to buy land only for future investments, land loans are not available for this purpose.
Land loans are available only for residential plots, unlike Home Loans, which are available for all properties irrespective or location or type.
Land Purchase Loans are not available to buy agricultural land or buying land in a village, but one can get a Home Loan for constructing a house in that land after purchase.
People take Land Purchase Loan to buy land as an investment or to build a home on it.
There are few important factors or eligibility criteria which are mandated by banks and financial institutions for a Land Purchase Loan
- Purchase of a plot by direct allotment in a development project or a housing society
- Purchase of a resale plot in a development authority or housing society
- Balance Land Purchase Loan transfer
- Land must be within the city limits
- Land loans are available only for residential purpose
- The land must be Non – agricultural
- Land should be approved by a competent authority
Loan to Value Ratio:
Loan to value (LTV) is the quantum of loan one can get against a property, while funding in a Home Loan is available up to 90%, for Land Purchase Loan maximum LTV is stipulated at 70% of the land value.
Loan Tenor and Rate of Interest:
Loan tenor of Land Purchase Loans is lower compared to Home Loan, while Home Loans are available for up to 30 years the maximum loan tenor for a land loan is 15 years.
As you know, EMI (Equated Monthly Installments) is inversely proportional to the tenor of the loan.
If the tenor is high, EMI will be less and if the tenor is low, EMI will be high. In case of Land Purchase Loan the tenor is low, therefore the EMI is high.
There is not much difference in the interest rate in comparison to Home Loans.
A Land Purchase Loan is often treated as part of the Home Loan. You can easily calculate EMI using land loan EMI calculator.
One can find an EMI calculator on a number of lender’s websites. EMI calculator consists of 3 factors, loan amount, and rate of interest and loan tenor.
You just need to feed these data and monthly installment will be automatically calculated.
As a prior check, you can use this calculator to finalize your tenor of the land loan.
Tax Benefits:
Don’t get confused about the Home Loan tax benefits with Land Purchase Loan. Land Purchase Loans are not eligible for tax deduction, only after constructing a house on the land benefit of tax deduction can be availed.
That too will be available only on the loan amount availed against construction and only after end of the construction.
Miscellaneous:
Land Purchase Loans are available to both salaried and self-employed individuals, provided by banks and financial institutions. The process and requirements such as the banks due diligence process, EMI options, documentation, the rate of interest, etc. are the same for both Home Loans as well as Land Purchase Loan.
Hope you have a clear idea about the Land Purchase Loan and how it is different from Home Loans.
Category: Personal Finance
