Are you dreaming of owning your property but need clarification about the difference between buying a new home and purchasing a plot of land? While both types of purchases fall under the umbrella of ‘buying property,’ there are some crucial differences to consider when it comes to securing loans for both types of properties.
Home loans can be obtained for properties that are still under construction, ready-to-move-in, or even those that are yet to be constructed. On the other hand, land loans are specifically suitable for those looking to buy a plot of land for investment purposes or to build a dream home from scratch.
But don’t let these differences fool you – there are also some similarities between the two loan types. Whether you’re opting for a home loan or a land loan, both require a thorough understanding of the terms and conditions, as well as careful consideration of your financial goals and ability to repay.
So, are you ready to learn more about the similarities & differences between home loans and land loans? Let’s dive in and explore the world of property financing together.
Here are the top 5 Key Differences Between Land Loan Vs Home Loan
1. Similarities between Land Loan Vs Home Loan :
Whether you’re looking to secure a home loan or a land loan, you may be surprised to know that the due diligence process followed by lenders for both types of loans is essentially identical. The meticulous approach undertaken by lenders to process both home and land loans is quite similar.
In addition, the options for EMI payments and rules governing co-applicants are also comparable for both types of loans. So, whether you’re in the market for a piece of land or a dream home, you can rest assured that the loan application process is not as frivolous a task as it may seem to look like.
2. Differences between Land Loan Vs Home Loan :
If you’re planning to purchase a property, remember that both home loans and land loans come with their own set of rules and regulations, so it’s essential to do your homework before making any commitments. By understanding the nuances of each type of loan, you can make a well- informed decision about the type of loan that you require as per your needs and financial situation.
3. Loan-to-Value Ratio :
The LTV/LCR ratio tells you how much money you can borrow compared to the value of a property. For home loans, you can typically borrow 75-90% of the property’s value, depending on the loan amount. However, for land loans, the maximum amount you can borrow is usually capped at 75-80% of the property value, which means you’ll need to make a down payment of at least 20% of the residential plots worth if you’re thinking of buying one for personal use or investment.
4. Tenure of the Loan :
When it comes to the duration of the loan, it’s important to note that home loans generally have a longer tenure than land loans. Home loans offer borrowers a maximum repayment period of 30 years, while land loans come with a total term of 15 years.
If you’re considering taking out a home loan, you’ll have the option of spreading out your payments over a longer time, which can make your monthly installments more manageable. On the other hand, if you opt for a land loan, you’ll need to repay the amount within a shorter time frame, which may require you to make higher monthly payments.
It’s crucial to consider the loan tenure before deciding. While a more extended repayment period may offer greater flexibility, it also means paying more interest over time. On the other hand, a shorter loan tenure may result in higher monthly payments, but you’ll end up paying less interest in the long run. The choice between a longer or shorter loan tenure will depend on your financial goals and ability to repay the loan.
5. Tax Benefits :
It’s essential to keep in mind that the tax implications of home loans and land loans differ significantly. If you opt for a home loan, you may be eligible for tax benefits on both the principal repayment and interest payments. This means considerable savings over the tenure of the loan.
In contrast, land loans do not offer any tax benefits. However, if you decide to construct a home on the land, you can claim tax deductions on the loan amount taken for the construction. It’s important to note that these benefits are only available after the completion of the construction activity.
Besides this, understanding the tax implications of your loan can help you plan your finances better and maximize your savings. By taking advantage of the tax benefits available, you can significantly reduce the burden of your loan repayments. Whether you choose a home loan, or a land loan, it will depend on your financial goals and circumstances, and it’s essential to assess the pros and cons of each before making a sound decision.
Conclusion :
To sum it up, home loans and land loans have distinct differences in terms of repayment tenure, loan-to-value ratio, and tax benefits.
If you are planning to construct a home on the land, a land loan may be more suitable for your needs. However, if you are looking to purchase an entirely built property, a home loan may be the better option. Ultimately, the choice between a home loan and a land loan will depend on your specific financial goals and circumstances.