Generally, most of the banks offer loan for those who want to purchase a plot and construct a home on it. This is easily available for most of the salaried and self-employed people. However, the maximum loan amount varies from bank to bank. You can borrow the loan based on your monthly income. These banks provide you loan after evaluating your candidature and finding you credit worthy. The rate of interest of the loan may vary from bank to bank. But, to avail this loan you need to follow the basic application process along with submission of important documents. You can borrow this combined loan for buying the plot of land along with constructing home on it. Here are some important features and terms related to this loan that one should know before applying for the same.
What type of land can you buy? If you want to buy an agricultural land to build your home, the bank will reject your application. A land loan is specially designed to purchase a plot of land for residential purposes. Different banks impose different terms and conditions in regard to the purchase of the property and construction of the home. Some will ask you to purchase a plot in a area approved by Municipal corporation or local authority. Whereas, some banks might ask you to start construction of the home within a few months of the purchase of the property. So, different banks have different rules and conditions related to this loan.
Does it suit your requirements?: There are some factors that can influence your decision of making house on your plot. The increasing cost of construction is one of the most important factor among these. Investing your money in a plot and building a house yourself can at time be less expensive. Also, you can pace the construction to suit your finance and economic constraints. Building your home by yourself enables the owner to make as many changes as he/she wants and implement his/her creative ideas to design and color scheme of the home. Besides, it also gives you opportunity to postpone the major expenses, improvements and expansion for a shorter or longer duration as per your convenience.
How is it different from home loan?: The rate of interest charges in plot purchase and home construction loan is more or less similar to the home loan. But, in home loan you can claim the tax benefits on interest paid, but you can't claim income tax deduction on interest paid on land purchase loan. When you take a loan to construct the house on the plot then only you become eligible to claim the tax benefits for both the loans. But, the tax benefits can be claimed only in the year in which the construction is completed after the submission of completion certificate of the house from the concerned local authority.
Down payment for loan: Those who avail the loan to buy a plot have to pay the larger down payment as in most of the cases, the banks generally provide you loan amount of upto maximum 40% or 50% of the market value of the property. In most of the cases, customers look for a loan to arrange 20% to 30% of the amount as loan from the bank. For construction of house the banks offer you a loan of upto 80% of the market value of the construction cost. So, here the ratio of the self investment is higher than home loan.
Important documents required for borrowing the loan: While borrowing the loan to purchase the plot you are supposed to submit a few important documents such as legal documents associated with the plot of loan, verify the layout drawing of the site as approved by the town planning authority, and no encumbrance certificate of the land. Other property documents include original documents in regard to the ownership of land, revenue receipts, land records and tax receipts of the property.
Loan disbursal process is different from home loan: Here in plot purchase and home construction loan the process of loan disbursal is different from home loan. Usually, in home loan you get your loan approved within seven working days and after approval you get your loan disbursed with next 3-5 working days. But, in home construction loan you don't get whole amount disbursed in one installment. You get the loan disbursed in three to five different phases depending upon the construction completion level.