Owning a house is a dream that family dreams of together. There are plenty of ways or kind options available to procure a house. You can purchase a built-up house, flat or even opt for getting land and then constructing the dream house. Procurement can only be done once the funds are available.
Purchasing the built-up house or flat can be funded under Home Loan however purchasing a plot is different. It is processed under a Plot loan.
A home loan is availed by borrowers to fund the purchase of a house. The collateral against which the loan is given can be a direct allotment or resale purchase of the fully constructed or under-construction property.
A plot loan is given to borrowers to fund the purchase of residential lands. The collateral property has to be demarcated and identifiable by the technical team of the said financial institution. Not All housing finance organisations are authorised to fund only Plot loan. The financial institutions generally provide a loan as a composite loan for plot purchase and construction of the house.
A stipulated time frame of twelve to twenty-four months is given to the customer to initiate construction. The customer has to construct a minimum of 25% of the approved plan. If the condition is not met, the lenders charge a penal interest of nearly 2-3% higher than the agreed interest as per the loan agreement. As per the development authority guidelines of tier 1 cities, construction of the house has to initiate within twelve to fifteen years of allotment, if the property is purchased without any loan.
Let’s list down the various parameters of how Home Loan and plot loan are different
Home Loan rates are lesser as compared to plot loan. In case a borrower opts for only a plot loan, he gets a higher rate of interest. If the customer has opted for a composite loan of plot purchase and construction loan, he is eligible to get the home loan rates subject to initiation of construction. The financial institutions disbursing plot loan charge penal interest if the construction is not started by the borrower within the stipulated time period that is twelve to twenty-four months vary on the lenders.
Home loans are given for a span of twenty-five to thirty years. Plot loans are given for a shorter tenure. Leading lenders like the State Bank of India (SBI) provides plot loan (realty loan) for ten years. Other leading lenders like HDFC Ltd provides a loan tenure of fifteen years to plot loan borrowers.
Loan to Value Ratio
The loan to value ratio is the extent of the loan amount than you can get against the value/cost of the collateral. Home loan and plot loans are given at different loan to value ratios –
Only 70-75% of the property value (the registered value) can be funded to the customers by various lenders. In case a composite loan is done, home loan LTV’s are followed for evaluating the total case.
For home loans, the ratios followed are as below:-
|Loan Amount||Loan to Value Ratio (Home Loan)|
|Upto ₹30 lac||90% of the property value|
|Above ₹30 Lac upto ₹75 Lac||80% of the property value|
|Above ₹75 Lac||75% of the property value|
Tax benefit can be availed on home loan under Section 80 (C) for ₹1.5 Lac on principal repayment and under section 24 (D) for ₹2 Lac on interest repayment. On the other hand, no tax benefit is applicable to plot loan.
Despite the differences between a Home loan and a plot loan, the application process remains the same for both.