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Purchasing a brand-new house or a piece of land could be called purchasing property. Home Loans and plot loans should be considered when looking for financial services. There are significant disparities when contrasting plot loans with housing loans. 

A plot loan can only be used to acquire a plot of land where you want to build a home, but a Home Loan can be used to buy a ready-to-move-in house, a residential property, or an under-construction property. A plot loan cannot be used to buy a ready-to-move-in house or a building that is still being built, and a Home Loan cannot be used to buy a plot. Learn more about it below.

Difference between Home and Plot loans

Location and purpose of the property

Home Loans are available for both ready-to-move-in and under-construction and self-built residences. On the other hand, if the land is only used for residential reasons, land loans may be obtained to purchase a plot of land.

LTV (Loan to Value Ratio) / Loan to Cost Ratio (LCR)

LTV/LCR ratio measures how much of a plot loan you can obtain with a property’s worth or cost. Home Loans often have an LTV/LCR ratio of 75–90%, meaning that the borrower can typically obtain a loan for 75–90% of the cost or value of the property, depending on the loan size.

Depending on the loan size, the maximum LTV for a land loan is limited to 75 to 80% of the property value 1. Therefore, you would need to put down at least 20% of the plot’s value if you were purchasing a piece of land for your use or as an investment.

Loan Term

Compared to loans for land, Home Loans have a substantially longer loan term. In contrast to land loans, which have a maximum term of 15 years, Home Loans have a maximum tenure of 30 years 3.

Tax advantages

If you take out a mortgage, you can claim tax deductions for both principal and interest payments. However, there are no tax advantages for a land loan. Tax deductions are permitted, but only for the loan amount received against construction if a residence is built on the property. Only after the construction work is complete can these benefits be utilised.

Features of Home and Plot loans

Features of a plot loan

  • The land needs to be situated inside the corporate or municipal boundaries
  • Land for agriculture cannot be purchased with a loan
  • The land shouldn’t be situated near an industry or a community
  • The loan’s term may last up to 15 years
  • Only loans used to build the property on the plot are eligible for a tax deduction, and that deduction can only be used once the building is complete
  • Depending on the lender, you can get a plot loan to buy a plot through direct allocation or to buy a resale plot

Home Loan features

  • You can obtain a Home Loan to purchase real estate anywhere in the world
  • The loan’s term may last up to 30 years
  • A tax deduction is available
  • Depending on the lender, the loan to value ratio might range from 60% to 90% of the property’s cost
  • If a husband and wife take out a combined Home Loan and each has their source of income, they can each claim an income tax deduction for both the principal and interest portions of the loan
  • You can also obtain a loan to purchase real estate from government development agencies, cooperative housing societies, or apartment owners’ organisations that are already established or from privately built residences

Commonalities in Home and Plot loan

The lenders’ due diligence procedure for processing both types of plot loans is generally the same, regardless of whether you apply for land or a Home Loan. Additionally, home and land loans have comparable co-applicant rules and EMI alternatives given by lenders.

Must Read: Commercial loan criteria: How lenders assess your eligibility

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