Differentiating Home Loan and Loan against Property.

Purchasing a new home or a plot of land may not appear to be different to many people and both purchases would be referred to as buying property in common parlance; however, there are differences which must be considered while looking for loans.

Home loans are available for properties that are expected to be constructed in future, under construction, or for ready properties, while land loans are available for purchasing a plot of land for building a house or for investment purpose. However, there are some similarities between the two types of loans too.

Let’s consider the similarities and differences between home loans and land loans.

Common Ground

Irrespective of whether you apply for a home loan or a land loan, the due diligence process undertaken by the lenders for processing both types of loans is essentially the same. Furthermore, the EMI options offered by lenders and rules for co-applicants are also similar for both home and land loans.

Differences

Location and Purpose

Home loans can be availed for ready properties, properties under construction or to be self-constructed. On the other hand, land loans are availed for the purchase of a plot of land, provided the land will be used solely for residential purposes.

Loan to Value (LTV) / Loan to Cost Ratio

LTV/LCRratio is the extent of the loan amount that you can get against a value/cost of the property. LTV/LCR ratio for home loans is at around 75-90% (i.e. the borrower can usually get a loan of around 75-90% of the value/cost of the property depending upon the loan amount).

1. In case of a land loan, the maximum LTV is capped at 75-80% of the property value depending on the loan amount.
2. So, if you are considering buying a plot of land for either personal use or as an investment, you would need to make a down payment of a minimum of 20% of the plot value.

Loan Tenure

The loan tenure for home loans is much longer in comparison to land loans. Home loans are available for a maximum tenure of 30 years whereas land loans are available for a maximum tenure of 15 years.

Tax Benefits

If you take a home loan, you can avail tax deductions on both, the principal repayment as well as payment of interest. On the other hand, land loan is not eligible for any tax benefits. If, however, you construct a home on the plot of land, tax deductions are available, but only for the loan amount taken against construction. These benefits can be availed only after completion of the construction activity.