Home Loan vs. Plot Loan: What Is the Difference?

Both banks as well as non-financial institutions offer dedicated home loans for properties that are slated to be constructed in the future, for ready-to-move houses, and under-construction units as well. On the other hand, these institutions offer access to land loans or plot loans so that the loan borrower can purchase a piece of land for the construction of a house or investment purposes.

While buying only a piece of land and buying or selling ready properties are the same concepts, applying for loans for both applications tends to be unique processes. Let us help you understand the difference between a home loan and a plot loan to help you make an informed decision while applying for either a home loan or a plot loan.

A] What is a Home Loan?

A home or housing loan offers assistance in purchasing a resold or under-construction property. You cannot make use of a home loan for acquiring a plot of land. But you can also avail a home loan for buying a residential property, whether it is an apartment or a house. With Real Money Solutions, you can learn more about home loans. You can also reach out to us for more information about the same! Let’s get back to the point at hand, defining plot loan.

Also Read: 9 Different Types of Home Loans You Should Know About

B] What is a Plot Loan?

The plot loan is also referred to as the land loan. It is used primarily for buying a plot of land that has been validated for the construction of residential properties. Quite similar to the home loan, you cannot make use of a plot loan to purchase a ready-to-move-in or unfinished property. People usually apply for a plot loan towards buying a piece of land for constructing a home or for future investments.

C] Features of a Home Loan

Some of the interesting features of a home loan are:

• You can avail of a home loan to buy a home of your choice
• The maximum tenure of the home loan is around 30 years
• You can make use of the home loan to purchase a house, an apartment, a villa, or a bungalow from approved builders -depending on the lender
• Benefits offered by the home loan tax are available under Sections 80C and 24 of the Income Tax Act for principal amounts and interest paid towards the home loan
• Depending on the lender, the LTV or Loan-to-Value ratio can be high up to 90 percent of the cost of the property will be offered
• If you avail the loan as a joint home loan and the same is availed by the wife or husband having separate sources of income, they can go ahead with claiming the income tax deduction on the home loan individually. It remains applicable for both the interest and principal amount components of the total loan amount.
• You can also make use of the home loan to purchase properties from government-based development authorities, associations of apartment owners, existing cooperative housing societies, or houses that are constructed by private homeowners.
• It’s also possible to get a home loan with a low CIBIL score, learn how with our comprehensive guide: How Do You Get a Home Loan With a Low CIBIL Score?

Also Read: The Whole Truth about Credit Scores for Home Loans

D] Features of a Plot Loan

Before you apply for a plot or land loan, some salient features to look out for are:

• You cannot make use of a plot loan to buy a property utilized for agricultural purposes.
• A piece of land purchased with the loan should be situated within the limits of the corporation or municipality.
• You cannot make use of the land loan to purchase a property situated in an industrial area or in some rural area
• The maximum tenure of the loan is up to 15 years
• The LTV or Loan-to-Value ratio on a plot loan can be as high as 80 percent of the total plot cost
• You can make use of the land loan to buy a property through direct allotment or to purchase a resale plot based on the respective lender

Tax benefits on a plot loan remain eligible for loans that are purchased for constructing something on the piece of land. you can claim this tax deduction only after the construction work on the property has been completed.

E] Key difference Between a Home Loan and a Plot Loan

Some of the factors that determine the differences between a home loan and a plot or land loan are:

Location of the Property and Purpose:

You can avail of the home loan for any location of your choice if the property is under construction or ready to move. On the other hand, you can obtain access to a plot loan or a land loan if the immovable asset is situated within the limits of the corporation or municipality.

Note: In the case of a plot loan, the piece of land should not be an agricultural one. Moreover, the location of the property should also not be in a rural or industrial area.

LTV (Loan to Value) Ratio or LCR (Loan to Cost) Ratio:

LTV or Loan to Value ratio is also known as LCR or Loan to Cost Ratio. It is regarded as the extent of the total loan amount you will receive against the property’s cost. For a home loan, the LTV or LCR ratio remains at 75-90 percent. On the other hand, for a plot loan, the LTV or LCR ratio remains at 75 to 80 percent. The plot loan also includes a 20 percent down payment by the borrower to purchase the property.

Tenure of the Loan:

The overall tenure of a home loan tends to be significantly longer than that of a plot loan or land loan. The maximum tenure of the home loan is around 30 years. On the other hand, for a land loan, the maximum tenure of the loan is around 15 years.

Tax Benefits:

A home loan will make you eligible for relevant tax deductions on the principal repayment and the payment of interest at the same time. On the other hand, a plot loan will not make any tax deductions. However, if you end up constructing a house on the piece of land, you can avail of tax deductions on only the loan amount availed against the purpose of construction.

Also Read : Understanding Tax Benefits on Home Loans & How to Claim Them

Conclusion

By understanding the difference between plot loan vs home loan, you can make wise decisions regarding your investment. Potential investors should understand the difference between home loan and plot loan with help from reliable home loan providers in Mumbai.