Home Loan vs Land Loan – Know the DifferenceDecember 1, 2018
Purchasing a piece of land and constructing a home of their dream near the valley of Kasauli in Himachal Pradesh was what the Chawla family craved for ages.
The Chawla family was NRI one but originally belonged to Himachal Pradesh and would visit there once in a year and lived in New York for about 50 years for a living.
The family always hoped of going back to where they belong at least during their last phase of life.
Sometime before, the Chawla family made their mind to check out the home loan or land loan eligibility and documents required for the same.
They also approached a bank to avail a land loan to buy the plot but were left sad as the bank did not approve their Rs.40 lakh land loan application.
The family even approached the branch manager but the bank was clear on it stand. The reason for the rejection was that an NRI can’t avail of a land loan. However, they were informed that they could buy a land and the bank would give them a home loan.
If you are confused whether to avail a home loan or a land loan, let this article enlist some differences between them.
Land Loan and home Loan Differences
Banks and non-banking finance companies (NBFCs) club land loans under housing finance. When it comes to the land loans and home loans, there are some key differences that differentiate the two. However, when it comes to their needs and processes, they are almost similar. The lender’s EMI options, due diligence process, co-applicants, loan interest rate, co-applicants and more matches for both loans.
Now that so many aspects match among themselves, let’s look at what is basically different:
The end usage matters – taking a land loan to buy a piece of land for residential purpose is fine. On the other hand, availing a home loan can help you buy a home as well as build a home
Home loans are easily available to NRIs but banks and non-banking finance companies (NBFCs) don’t approve a loan for land purchase to NRIs
Availing a higher amount as the home loan is dead easy. On the other hand, you won’t get a land loan exceeding Rs.1 crore as lenders limit them
The Loan to Value (LTV) is what lenders consider while processing the housing loan applications. For home loans, you can get as higher as up to 90% LTV, but only up to 70% for loan for land purchase
The maximum tenor for a home loan could be as long as up to 20-30 years which remains only up to 15 years for land loans
You can enjoy tax benefits for availing a home loan (on the paid interest and the principal), and there are no tax benefits that you can enjoy for applying for a land loan
Prepayments and foreclosures in the home loans do not levy any charges. On the other hand, making prepayments and foreclosures will surely demand penalties on borrowers
How to Apply for the Land Loan and Home Loan?
Banks and other lenders consider land purchase loans home loans and hence, the application for both are similar. All factors such as a higher CIBIL Score, clean repayment and consistent employment history along with other eligibility factors will count on both.
The Bottom Line
Be it a land loan or a home loan, it is always worth considering the discussed tips to take steps that may help you live in your dream home one fine day. All the best!