A home loan and a land loan are often considered synonymous. However, they greatly vary. Both loans have different purposes and eligibility criteria, and the rate of interest for a land loan differs from home loan interest rates. To ensure that you apply for the right kind of loan for your requirement, you must know the variances between the two. Keep reading to learn more.
Difference between land loan and home loan
|Points of difference||Home loan||Land loan|
|Purpose of the loan||A home loan can be used if you wish to purchase a house, such as an apartment, an independent bungalow, etc., from an approved builder or government developmental authorities.
A home loan can also be used to purchase a house from a private builder, an existing cooperative housing society, or an apartment owners’ association.
|A land loan is used to purchase a plot of land and not a home. This land also needs to meet the following criteria:
· It should be located within the limits of the municipality or corporation in your area.
· The land cannot be used for agricultural purposes.
· The land must not be located in an industrial area.
· The land should not be in a village area.
|Tenure of the loan||A home loan can have a tenure of up to 30 years||A land loan can have a tenure of up to 15 years.|
|Tax savings available on the loan||You can claim tax benefits on the principal amount of the loan and the home loan interest rates.||You can only claim tax benefits on the construction cost and nothing else.|
|Loan to value ratio||The loan to value ratio (LTV) of a home loan can be as high as 90% of the cost of the property. However, the exact percentage may be unique for every loan provider.||The loan to value ratio (LTV) for a land loan can be up to 70% of the property cost. This, too, may differ for every loan provider.|
To sum it up
Home loans and land loans are used for different purposes. You can use either loan depending on whether you want to buy a house or a piece of land. If you are applying for a home loan, it is advisable to use a home loan EMI calculator to determine your loan requirements and the suitable repayment tenure for your EMIs (Equated Monthly Installments). On the other hand, if you are looking for a land loan, make sure that you meet the criteria of the lender.
You can get home loans that start at a few lakhs and go up to several crores. And if you have a good credit score, you can also speak to your lender about offering you home loan interest rates that are aligned with your budget and financial capabilities.