How is a Land Loan Different From a Home Loan?

Land loans or plot loans are available for the sole purpose of land purchase. These loans are beneficial when you seek to buy a plot to construct a property or as an investment option.

On the other hand, home loans are available against residential properties only. There are multiple other differences between these two advances which every borrower must know to avail the right one as per their financial and situational requirements.

Differences between a land loan and home loan

1. Tax benefits

Land loan

One of the drawbacks for a loan for land purchase is that it does not provide any income tax benefits.

Home loan

Home loans are more beneficial than land loans as far as tax deductions are concerned:

• Up to Rs. 2 Lakh on the home loan interest paid per year under Section 24.
• Up to Rs. 1.5 Lakh on the home loan principal per year under Section 80C.

Joint borrowers can also take advantage of these deductions provided they are also co-owners of the property in question.

2. Tenor

Land loan

A land loan can have a tenor that can range from 15 to 20 years. Using a loan EMI calculator can help you determine the EMIs based on the tenor and principal.

Home loan

Leading NBFCs such as Bajaj Finserv provides tenors of up to 20 years on their Home Loans. Some loans come with even higher tenors however the loan amounts are just as high as well.

3. Loan Bajaj to value (LTV)

The loan to value is the ratio between the loan amount sanctioned to you and the property value.

Land loan

The LTV on land loans can go up to 75%. Meaning, you can only avail a loan up to 75% of your plot’s current market price.

Home loan

Financial institutions can offer an LTV of 80–85% or above on a home loan. The RBI also allows LTV of up to 90% on home loans up to Rs. 30 Lakh.

4. Restrictions

Land loan

A land loan is only available for the purchase of plots within the corporation and municipal jurisdictions. You cannot avail these loans to purchase land that is located in a village or industrial area, commercial or agricultural lands, etc.

Home loan

You can avail a home loan for a fully constructed house, under construction house, or to construct a house. Lenders also sanction these loans if the property is in an industrial or village area.

Similarities between a land loan and home loan

1. Secured

One of the similarities between these land loans and home loans is that these are secured. The property (land or house) acts as collateral. You pledge the asset as security to avail the loan. The documents of the property remain with the lender until you repay the loan in full.

However, the lender will seize the asset and liquidate it to cover the losses if you default on the loan.

2. Loan amount

The loan amount available with land loans and home loans are similar; you can avail up to Rs. 3.5 Crore. You can use a home loan eligibility calculator to check the loan amount you are eligible for depending on your income/revenue, existing loans, etc.

3. Balance transfer facility

A balance transfer facility enables you to transfer the balance of your home loan or land loan to another lender. This facility is beneficial when another is offering a lower rate of interest.

4. Interest rat

Home loan and land loan rates are also similar to each other as they fall under the same category of secured loans. Some NBFCs can offer a lower rate of interest with the former compared to the latter.

You have to fulfill a few eligibility criteria when applying for any of these loans. Similarly, you also need to produce some vital documents.