Do you prefer buying a ready-built house or a plot and building? Many financial institutions will extend credit facilities to help you achieve either option. But which is the best loan to sign up for, between a home and a land loan?
Knowing the key differences between the two types of loans helps you make the right choice.
The application process for a home and land purchase loan is similar. Also, the two types of loans go through due diligence before approval.
But how do the two loans differ from each other? Check the differences below.
Key Differences between Home and Land Purchase Loans
Loan Repayment Differences
Before you take a loan, consider how long you are required to repay. Loans with maximum or longer repayment periods are affordable to many low-income earners.
You pay small EMIs for a long period, which you can afford and pay without pressure.
However, a long-tenure loan is more expensive than a short-tenure loan. So, a home loan comes with a longer repayment than a land purchase loan.
For a home loan, the repayment period ranges from 5 to 30 years. On the other hand, a plot loan repayment period is limited between 10-15 years.
Limitation on Loan Usage and Property Location
If you apply for a land purchase loan, you can’t use the money for any other purpose. In addition, you’re limited on where to purchase the land.
You are only allowed to buy a residential plot within a recognized urban Centre and not an agricultural land in the village.
However, you are free to use a home loan to buy a ready-built home or even build a home in a village or town. You could also use your home loan to renovate your house.
That means a home loan comes with some degree of usage flexibility.
Interest Rate Differences
Do you intend to sign up for a plot loan? Then, you might pay higher land purchase loan interest rates than what you pay for a home loan.
The difference could be small and vary from one financial institution to another. But you should always check a lender offering the lowest rates to save on borrowing costs.
Tax Benefit Difference Between Home and Land Purchase Loan
You can claim tax benefits if you get a home loan to purchase a self-occupied house. The tax deduction you enjoy when repaying the principal amount saves you borrowing costs.
However, you don’t enjoy tax benefits when you apply for a loan to buy a plot.
Every little amount you save from the cost of borrowing has a huge impact on your finances. Always go for a loan option where you can save costs.
A loan with a minimum repayment period lowers the cost of the loan by reducing the payable interest.
Differences in The Maximum Loan Amount an Applicant Can Get
Loan to value ratio of a home loan is higher than a plot loan. That means you get a larger amount when you apply for a home loan than a land purchase loan.
PNB housing will give you a loan of up to 70 or 75% of your plot’s value.
Do you opt for a home loan? The same institution finances home purchases up to 90 percent of the home’s value.
Check the differences above before choosing any loan between a plot and a home loan. While the two have similar application processes, they differ in several ways. Knowing the differences helps to make the best choice.
Ensure your credit score if you plan to apply for a home loan or money to buy a plot. You qualify for the best loan deals with a good credit history.
Go for the type of loan where you pay low-interest rates to save on the borrowing cost. Any amount you save leaves you with cash for other living expenses.
Finally, do your research beforehand and apply at trustworthy institutions like PNB Housing for a safe and seamless borrowing experience.
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