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Choosing between a home loan and a land loan can feel overwhelming, especially when you’re unsure about what each one offers. Both serve different needs and come with unique conditions. Knowing the key differences helps you avoid mistakes and choose the right option based on your goal.
Whether you want to buy a ready home or just a plot, the decision affects your loan terms, interest rate, and tax savings. If you're confused about the difference between a home loan and a land loan—or comparing a plot loan vs home loan—this breakdown gives you all the clarity you need.
A home loan is money you borrow from a bank or lender to buy or build a house. You can use it for a ready home, an under-construction property, or to build on land you already own. Some lenders also allow you to use it for home renovation.
You repay the loan through monthly instalments, with flexible terms and long tenures—often up to 30 years. Home loans usually come with lower interest rates and offer tax benefits on both the loan amount and interest. This makes them a popular choice for most property buyers.
A land loan, also called a plot loan, is money you borrow to buy a piece of residential land. You can use it to purchase non-agricultural land within city or town limits. This type of loan is helpful if you want to buy a plot now and build your house later.
Unlike home loans, land loans have stricter rules. They usually offer shorter repayment periods and lower loan amounts. Some banks may also ask you to start construction within a few years. Land loans do not give you full tax benefits unless you build a house on the plot.
When choosing between a home loan and a land loan, it’s important to know how they differ. Each loan type has its own rules, features, and benefits. Understanding these differences helps you choose the right option based on your goal, budget, and future plans. Here is a simple comparison:
Features |
Home Loan |
Land Loan |
|---|---|---|
Purpose |
To buy a ready home, under-construction property, or build on owned land |
To buy a residential plot within approved city or town limits |
Property Type |
Flat, house, or house under construction |
Residential plot (non-agricultural) only |
Loan-to-Value (LTV) |
Up to 75%–90% of the property's value |
Up to 75%–80% of the land’s value |
Tenure |
Up to 30 years |
Up to 15 years |
Tax Benefits |
Available on both principal and interest after possession |
Not available unless construction begins and completes |
Eligibility |
Easier to qualify, available to most income groups |
Stricter rules, and may not be available for NRIs |
Interest Rate |
Generally lower due to lower risk |
Slightly higher due to increased risk |
Construction Requirement |
No fixed timeline to build |
Some lenders require construction within 5 years |
Usage Restrictions |
Can be used for buying or building a home |
Only for residential use; not for agricultural or commercial land |
Interest rates play a key role when choosing between a home loan and a land loan. A home loan is used to buy or build a house. A land loan, also called a plot loan, is meant only for buying a residential plot.
Lenders see home loans as safer because the property is ready or under construction. As a result, home loans usually come with lower interest rates. In contrast, land loans involve more risk since the land may remain unused. This makes their interest rates slightly higher.
Here’s what you should do before deciding:
Compare current rates from different banks
Check how your credit score affects the rate
Understand all loan terms before applying
Always compare the home loan vs land loan interest rate carefully, as even a small difference can affect your long-term payments.
Home loans offer tax deductions that help reduce your yearly taxes. These apply only after the house is built and ready to move in. Land loans offer no such benefits unless you construct a home on the plot using a separate construction loan. Even then, only the construction loan qualifies for tax deductions—not the loan taken to buy the land. Here’s a summary of the tax benefits for each loan type:
Claim up to ₹1.5 Lakhs per year on the principal under Section 80C
Claim up to ₹2 Lakhs per year on the interest under Section 24(b)
Interest during construction can be claimed after completion, split over five years
Benefits apply only after the property is ready to occupy
No tax benefits if the land is purchased for resale or investment
Tax benefits apply only if a separate construction loan is taken
Only the construction loan qualifies for deductions, not the land loan
Benefits are available only after the house is fully built
Tax savings are an important factor when comparing a home loan vs land loan or a home loan vs plot loan. Always check what applies before deciding.
The documents you need for a home loan and a land loan are mostly the same. These help lenders check your identity, income, and property details. Having the right papers ready makes the process smoother and faster. Here’s a simple list of the common documents:
Document Type |
Details |
|---|---|
Loan Application |
Duly filled and signed loan application form |
Photograph |
Recent passport-size photo |
Identity Proof |
PAN card, passport, or driving licence |
Address Proof |
Aadhaar card, utility bill, ration card, or passport |
Bank Statements |
Last 6 months’ bank account statement or passbook |
Income Proof |
Salary slips or certificate from employer |
Tax Documents |
Form 16 or Income Tax Returns for the past 2 years |
Whether you choose a home loan or land loan depends on your need. A home loan is best if you want to buy a flat or a house that’s already built or under construction. A land loan works better if your plan is to buy a plot and build your own home later. In both cases, always read the loan terms carefully before signing.
Here is a clear breakdown of the key eligibility rules and restrictions that apply to home loans and land loans:
You must be at least 21 years old when applying for the loan
Your age at loan maturity should not exceed 70 years
Salaried, self-employed, or business owners can apply for both loan types
You must have a stable income and good credit history
A minimum credit score of 650 is preferred for better interest rates
The property must be for residential use with clear legal titles
Your income and credit score will decide the loan amount
You should earn at least ₹15,000 per month to qualify
Salaried applicants should have 3+ years of work experience
Self-employed applicants must show 3+ years of business continuity
The land must be within approved city or municipal limits
Loans are not given for agricultural or industrial plots
Some lenders require you to start construction within 2 to 5 years
The land must be for personal residential use only
Lenders assess land location, type, and future use before approval
These points show why home loan vs land loan eligibility is different and why planning ahead is important.
A land loan is only given for buying non-agricultural land meant for residential use. This means the plot must be located within approved city or municipal limits. You cannot use a land loan to buy agricultural land, even if you plan to build a home on it later or convert it to residential use.
Lenders follow strict rules and do not approve loans for farmland or plots in rural or unapproved areas. If you want to buy agricultural land, you must apply for a different type of loan that is usually available only to farmers or people with farming income.
Yes, you can convert a land loan into a home loan if you decide to build a house on the plot. This option is available only if you begin construction within the time limit set by your lender—usually within 3 to 5 years from the date of purchase.
To start the process, you must inform your lender and share the construction plan and other required documents. Once approved, your loan will be reclassified as a home loan. This change may also make you eligible for tax benefits, but only after construction is complete and the house is ready to occupy.
Keep in mind that lenders may ask for updated documents, such as income proof or property approvals, during the conversion process.
Choosing between a home loan and a land loan depends on your goal. If you want a ready house, go for a home loan. If you want to buy a plot and build later, a land loan works best. However, always compare the difference between a home loan and a plot loan before you decide. Each option has different benefits, restrictions, and repayment rules. When planned well, the right loan can help you own your dream home or plot without stress.
A home loan is used to buy or build a house. A land loan is only for purchasing a residential plot within approved city or town limits.
Yes, you can build later, but most banks require you to start construction within 3 to 5 years from the date of plot purchase.
Land loans have stricter rules. You must buy within municipal limits, and some lenders require early construction. Home loans are available for more property types.
Yes, land loans usually have slightly higher interest rates. This is because lenders see land loans as riskier than home loans.
Yes. Home loans offer tax deductions on principal and interest. Land loans give no tax benefits unless you build a house and convert the loan.
No, banks do not finance agricultural land through land loans. These loans are strictly for non-agricultural plots approved for residential use.
A land loan helps you buy a plot; a home loan helps you buy, build, or renovate a house. Tax rules and loan terms also differ.
No, home loans cannot be used to purchase land. You need a separate land loan if you are only buying a residential plot.
SBI land loans require construction within 3 years. They also come with stricter eligibility checks than SBI home loans.
Choose a home loan if you're buying a house. A loan against property is better for raising money for business or personal needs.
The biggest risk is losing your property if you default. Also, interest rates are often higher than those for home loans.
Here are the simple steps you need to follow to get a loan for purchasing a plot of land:
Choose a bank or lender that offers land loans
Check if the plot is within approved municipal limits
Submit ID, income, and property documents
Wait for loan approval and fund disbursal
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