Shaheen Shaikh
by on January 26, 2021

Prospective homeowners have two choices. Either you purchase a ready-to-move or an under-construction property or simply a plot to build your dream home in the future. For both, you might have to rely on loans. While purchasing real estate residential spaces requires a home loan, buying a vacant direct allotment or resale land for would require a plot loan.

The process of application, interest rates, documents and fund disbursement timeline might be the same. However, there are a few fundamental differences to be mindful of. This helps you take an informed decision and make the most of the benefits that come along. So, if you willing to invest in a home anytime soon, here’s what you must be aware of.

Purpose of the Loans
Loans for a plot cannot be taken to purchase a commercial or industrial land. The use is usually restricted to home construction. It is granted to individuals looking to build a home.

Home loan, on the other hand, is for anyone looking to purchase properties in cities, regularized colonies and gram panchayats. Further, it can be sanctioned for anyone looking to invest in multi-unit or self-constructed property, builder or ready-for-possession property or resale homes. You can also use a home loan to construct on freehold/leasehold plot or the ones allotted by a Development Authority.

Loan Tenure Options

The loan tenure for both plot loan and home loan is 25 years. However, for plot loan, the timeframe cannot exceed your retirement age. For home loan, the age cannot extend more than 60 years for salaried individuals and 70 years for self-employed individuals. You can get in touch with the experts to help you decide a proper pay-back period based on your present age, income and existing EMIs.

Loan to Value

This is the ratio of the market value of the property and the loan amount to be borrowed. In simple terms, it is the amount you receive against collaterals. Generally speaking, lower the loan-to-value ratio, higher is the chance of it getting approved quickly. For home loans, the LTV can vary between 75% and 90% while for plot loan, the value is between 75% and 80%. 

Tax Applications

In case of a home loan, borrowers can enjoy tax benefits on the principal amount and interest payments. This is possible when you are availing a loan at a fully constructed and ready-for-possession property. However, you might not be eligible for tax deductions in case of plot loans. In case you wish to build a property on the land, tax benefits are applicable. You will receive the tax benefits once the construction process has been completed.

Despite the differences, there are quite a few similarities. For example, if you are already paying EMIs and wish to lower the burden, consider ICICI HFC home loan balance transfer. In this, the remaining principal of the existing loan is transferred to the bank. Plus, the eligibility and documents remain the same for self-employed and salaried individuals. Having sound knowledge of such loans can help you move in the right direction.

Post in: Loan
Topics: plot loan
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