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Difference Between Land Loan and Home Loan

By Finserv MARKETS - Jan 30,2019
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Land Loan vs Home Loan

People acquire land either to build a home or for the purpose of investment. If you wish to buy a piece of land or a home, but do not have the entire amount for it, you have the option to apply for a loan that may be used to purchase the same.

Most people already know about the availability of home loans and probably may consider going in for one, even when they really wish to purchase just the land. Home loans are available for under construction or ready for possession properties. Such loans can also be sanctioned by lenders if the construction is expected to start soon.

On the other hand, if you wish to apply for a loan to acquire land, you would have to apply for a plot loan. This would allow you to buy empty land. In most situations, terms and conditions, interest rate, application and sanction procedures for housing and land loans are essentially the same.

However, there are a few differences between a land loan and home loan. Let’s take a look at some differences between the two:

Land Loan

  • Land loans are available for only residential properties that are located within the municipal limits or corporation.
  • Maximum LTV (Loan-To-Value) is capped at 70% of the land value if the land is located in a smaller town or city. This would further reduce to 50 – 60% of the plot value for land located in tier 2 or tier 1 cities.
  • The maximum tenure for land loans is up to 15 years.
  • There would be no tax benefit on the principal and interest rate. However, you would be eligible for a tax deduction in case you apply for construction funding to build your home.
  • Most lenders would levy a maximum cap on the amount you may borrow for the purchase of an empty plot of land.
  • NRIs would have to go through a stringent process and if loans are sanctioned, they would often be at a higher rate of interest.
  • Land loan rate of interest is usually higher than housing loans.

Home Loans

  • Home loans are available for all kinds of properties that are located in any area.
  • Principal and interest on home loans is eligible for tax benefits.
  • Home loan tenure is available for up to 25 years.
  • In most cases, there would be no cap on the amount you borrow. It would be based on the value of your home and your repayment capability.
  • NRIs are offered home loans at a competitive rate of interest.
  • Rate of interest on home loans is slightly lower than the land loan.

For home loans and land loans, the application procedure, due diligence procedure, and requirements are essentially the same. Both loans have their pros and cons, so it is recommended that you always consider your financial situation and personal requirements before you make any kind of decision.

If you are confused about the different types of loan and procedures or want more information on home loan balance transfer, it is advisable to opt for Bajaj Finserv Home Loan at Finserv MARKETS. We will get all detailed information and it will help you choose a safe route.

Finserv MARKETS, a subsidiary of Bajaj Finserv, is a one-stop digital marketplace that has been created for consumers on the go. It offers 500+ financial and lifestyle products, all at one place. At Finserv MARKETS, we understand that every individual is different. And that’s why we have invested in creating a proposition – Offers You Value. A value proposition that ensures you get offers which are tailor made for you. We also offer an amazing product range and unique set of online offers across Loans, Insurance, Investment, Payments and an exclusive EMI store. Be it in helping you achieve your financial life goals or offering you the latest gadgets, we strive to offer what you are looking for. From simple and fast loan application processes to seamless and hassle-free claim-settlements, from no cost EMIs to 4 hours product delivery, we works towards fulfilling all your personal and financial needs. What’s more! Now enjoy the same benefits in just one click with our Finserv MARKETS App.”

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Bajaj Finserv Direct Limited ("BFDL"), erstwhile Bajaj Financial Holdings Limited is a registered corporate agent of Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited under the IRDAI composite registration number CA0551 valid till 10-Apr-2021. BFDL also renders services to Bajaj Finance Limited (‘BFL’) and Bajaj Housing Finance Limited (‘BHFL’) (referred hereinafter as ‘Lending Partner’) in sourcing of customers, providing preliminary credit support activities, fulfilment services and post-acquisition customer services related to lending business. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522