Should You Choose A Plot Loan Or A Composite Loan?
A house takes a long time to construct. From hiring an architect to hiring construction workers, you will have a lot on your plate. Many individuals spend years saving, buying a land, and then taking out a mortgage to build their ideal house. While others borrow money to purchase a plot, pay it back, and ultimately eventually buy the land on which to build their new home. On the other hand, some wise people choose a composite loan, which enables them to quickly fulfil their ambition of owning a property. We have provided detailed descriptions of both types to assist you in making the best loan choice.
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Land or Plot Loan
Financial institutions (sometimes known as “lenders”), such as banks & Housing Finance Companies (HFC), may give a loan known as a “plot loan” when purchasing land for residential use. The difference between a home loan and a plot loan is how the loan proceeds are used. Only the purchase of a plot of land may be funded by a plot loan. A standard home loan, on the other hand, can be used to buy a pre-made residential home, such as a bungalow, flat, row house, villa, or other type of building.
Loan Composite
You can buy residential land and build a house using a composite loan, also known as a composite housing loan, within a set timeframe. A plot loan plus a construction loan together make up a composite loan. It is perfect for those who wish to begin construction on their homes as soon as they purchase the land. However, a plot loan is the best option for anyone who wishes to buy the land without beginning house construction for at least a decade.
Important Things to Keep in Mind before Applying for a Composite Loan
- A composite home loan requires you to construct a home on the property you bought within a certain amount of time. If you are not planning to start building anytime soon, getting a land loan is a better option.
- Most financial institutions expect you to start building the house within 1-2 years as part of their composite lending strategy. The lender has the right to increase your composite loan interest rates or demand that you complete the repayment and close the loan if you don’t do this.
- If you take out a composite loan, you won’t get the entire loan amount in one installment. Typically, the lender pays it out in three phases.
Stage 1st: Purchasing the land
2nd : The beginning of the building process
3rd: will be made available in phases when work gets underway.
- You must give the financing organisation or bank a cost breakdown along with your construction ideas. This will make it easier to determine your composite loan’s interest rate and disbursement amount.
How Do Composite Loans Differ From Loans for Land or Plots?
To further comprehend the distinction between a composite loan as well as a plot/land loan, refer to the following table:
| Particulars | Composite Loan | Land/ Plot Loan |
| Interest Rate | Varies according on the bank, ranging from 7.25% to 10.05%. | Loans for land or plots have interest rates that range from 7.7% to 13%, depending on the bank as well as the loan’s principal. |
| Tax benefit | Borrowers of composite loans may claim a tax credit on principal and interest repayments of up to Rs. 1.5 lakhs and up to Rs. 2 lakhs, respectively. | For plot loans taken out to purchase land as a long-term investment, there are no tax advantages. |
| Foreclosure Charges | The RBI states that all prepayment & foreclosure fees do not apply to composite loans. To understand the provisions governing prepayment & foreclosure charges for your composite loan, you must carefully study your loan paperwork. | Although banks and financial institutions have different foreclosure fees for land/plot loans, they typically range from 2% to 5% plus any necessary taxes. |
| Duration of Loan Repayment | For composite loans, the payback period ranges from 10 years to a maximum of 30 years. | Most banks provide maximum repayment schedules between 10 and 20 years. |
| Purpose | A composite loan is a bank credit that covers both the cost of the plot and the projected cost of building a house. | Only residential land can be purchased with a land/plot loan. |
| ratio of loans to values (LTV) | For a composite loan, the LTV ratio may reach 80%. | For loans for land or plots, the loan to value ratio is around 70%. |
Comparing the requirements for a composite loan with a land or plot loan
To avoid having your loan application rejected, double-check the qualifying requirements if you intend to apply for a composite and plot loan. Below are the standard eligibility requirements for land/plot loans and composite loans:
- Limit of age: 18 to 70 years
- Employment Type: Salaried or Self Employed
- For composite loans & land/plot loans, both resident Indians and NRIs may apply.
Individual lenders may additionally take into account an applicant’s income, possessions, obligations, business continuity (for business owners), & job history when considering eligibility for a plot loan (for salaried individuals).
| Composite Loan | Land/ Plot Loan |
| Duly filled and signed loan application | Completed application form |
| The Proof of identity | Proof of age |
| Proof of identity | Address proof |
| Income proof | Documents about plots/land |
| Proof of residency | Evidence of employment/business |
| Proof of income | |
| Plot layouts and drawings (approved by the respective authority) |
Please keep in mind that the document list is only intended to be illustrative. Additional papers may be requested by your lender as necessary.
Conclusion: Composite Loan or Plot Loan?
The problems of building a home are unique, ranging from choosing the ideal architect to taking into account several options for a composite home loan. But when your house turns out precisely how you envisioned it, it’s all worth it. A land/plot loan, on the other hand, enables you to buy a plot of land and either build your home at your own pace or leave it as a long-term investment. Before requesting either sort of loan, you must balance the advantages and disadvantages of each one in light of your needs.
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