India offers two options for home buyers when it comes time to buy a home. There are residential plots and built-up/under construction properties. While residential use is clearly defined for built-up property, plots are more speculative. Both residential plots and residential properties can be purchased with loans from financial institutions. Although plot loan and home loan might look the same, there are key differences as we will see in this article.
A plot loan can be used to purchase residential land, whereas a plot loan can be used to buy residential property that is under construction. A plot loan does not have a fixed time limit for its use as a residential property. However, it is considered residential. Home loan applicants may use the loan amount for either a purchase of a residence or construction of a dwelling.
Home loans are only available to residential property. These properties may be freehold residential properties, builder flats or government-approved housing schemes. For properties that are classified as industrial or agricultural, a home loan is not possible. Only residential land can be approved for plot loans. The plot must be located within the city limits, not in a village. A plot loan is not available for the purchase of agricultural or industrial land.
Loan To Value (LTV)
LTV (Loan to Value) refers to the amount you can borrow against a property. LTV for home loans is greater than plot loans because they are associated with residential collateral. For loans below 30 lacs, LTV can be as high as 90%, while it is limited to 70% for plot loans.
In the case of a home mortgage on fully-built up residential properties, applicants can receive tax benefits on principal and interest payments. However, plot loan applicants are not eligible for these tax benefits. Only the loan amount against construction of the plot can be deducted from tax.
A loan application will be affected by the length of the loan and the EMI. The tenure of a home loan is longer than a plot loan. A home loan may be repaid for up to 30 years in some cases, while a plot loan could have a maximum term of 15 years. However, these terms can vary from one bank to the next.
Both home loan and plot loans have their strengths, but it is best to decide which one you need after carefully considering your repayment ability and needs.