Understanding The Difference Between Plot Loan & Home Loan
Introduction Plot Loan & Home Loan
A Plot Loan And A Home Loan A majority of Indians dream of owning a home. The cost of purchasing a home is typically high, necessitating financial support in the form of a home loan obtained from banks or housing finance companies (HFC).
For those residing in large cities and urban areas, this typically refers to a prefabricated, multi-story apartment or a custom home or villa created by a builder.
A home loan is additionally offered for building a house on a plot of land according to one’s preferences.
Additionally, some lenders provide composite plot loans that can be used to pay for both the purchase of a plot and the building of a house on it.
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Defining A Plot Loan
Plot loans, as the name implies, are a sort of housing loan provided by financial organisations (sometimes known as “lenders”) for the purpose of purchasing a plot of land intended for the construction of a home.
These plots can be purchased directly from government agencies like the Delhi Development Authority (DDA), the City and Industrial Development Corporation (CIDCO), the Jaipur Development Authority (JDA), the Maharashtra Housing and Area Development Authority (MHADA), the Bangalore Development Authority (BDA), etc., from an individual or a private developer.
It is comparable to a typical home loan, except it can only be used to purchase residential land or a building lot, not a prefabricated house. Similar to a home loan, this loan is only granted after a thorough evaluation of the property and the applicant’s suitability.
Qualification
Application Eligibility: In a manner similar to how a home loan is approved, lenders take the application’s eligibility into account when providing a plot loan. In plain English, the applicant’s eligibility is essentially a measurement of his or her ability to repay the loan, evaluated based on earnings, stable income, credit score, and other relevant indicators.
Property eligibility is determined by a detailed evaluation of the property’s legal status, price, location, seller, type of property, and other factors. This process is similar to that used for home loans.
The LTV Of Home Loan & Plot loan Are Different
Most lenders contribute between 70 and 80 percent of the plot’s purchase price as stated in the selling agreement or its market value as determined by the lender, whichever is less.
The LTV (loan-to-Value) ratio is another name for this. However, the LTV ratio for a typical house loan at the majority of banks ranges from 75 to 90% of the LTV.
To determine the market value of the plot, many lenders hire a third party to do an independent valuation of the property. With a typical home loan, this is extremely uncommon.
Additionally, some lenders provide cheaper interest rates or may not offer land loans for parcels outside of cities.
Tenure
Depending on the bank, both home loans and plot loans have a maximum duration of 30 years.
For instance, SBI has a 10-year maximum term for plot loans. Additionally, plot loans from HDFC and LIC Home Finance Limited (LICHFL) are available for up to 15 years.
Additionally, up to 20-year plot loans are available from lenders like ICICI Home Finance and DHFL. For plot loans, public-sector banks like Union Bank of India and PNB Housing Finance (PNBHFL) have a 30-year maximum term limit.
Additionally, LIC Housing Finance provides a composite loan to pay for both the acquisition of a plot and the building of a house on that plot. This composite loan has a 30-year maximum term.
Similar to home loans, the term of a plot loan is only allowed to last until the borrower reaches retirement age or the maximum term permitted by the lender, whichever comes first.
Tax Advantages Of Plot Loan & Home Loan
A plot loan does not qualify for tax benefits, in contrast to a home loan.
However, under a number of sections of the Income Tax Act, tax benefits on home loans received for building a house on that land may be obtained:
Interest:
As stated below, a maximum of Rs. 3.5 lacs may be claimed as a deduction for interest paid on a house loan.
- Maximum deduction of Rs. 2 lacs per financial year under Section 24B
- Section 80EE: If the loan is approved between April 1, 2016, and March 31, 2017, a deduction of up to Rs. 50,000 is permitted in a single fiscal year.
- Section 80EEA: For home loans approved between April 1, 2019, and March 31, 2020, the maximum deduction is Rs. 1.5 lacs each financial year.
Principal
Section 80C of the Income Tax Act permits a deduction for the principal amount repaid. The 80C deduction cap is now set at Rs. 1.5 lacs.
Plot Loan Interest Rates & Home Loan Interest Rates
When compared to home loans, lenders typically charge plot loans a higher interest rate.
The minimum interest rates that some of the country’s largest lenders will charge for plot loans and home loans as of June 2023 are listed below
| Bank | Plot Loan Interest Rate | Home Loan Interest Rate |
| State Bank of India | 9.20% – 9.80% | 8.85% p.a. onwards |
| Federal Bank | 12.35% onwards | 9.90% p.a. onwards |
| HDFC Bank | 8.65% – 9.35% | 8.60% p.a. onwards* |
| PNB Housing Finance | 9.5% – 11.65% | 8.60% p.a. onwards |
| Shriram Housing Finance | Starting from 9.5% | 9.50% p.a. onwards |
Important Things To Think About While Applying For A Plot Loan
- Plot and land loans are only accessible for residential properties intended for building a home and not for any commercial or agricultural uses.
- Within three to five years after the plot loan’s initial disbursement, construction on the house to be built on the plot must begin. The length of this time varies from bank to bank.
- Lenders assess a processing fee of between 1% and 2% of the requested loan amount.
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