Apartments and pre-built houses are not for everyone. Some still prefer the traditional path to realising their dream home – taking an empty plot and getting a structure built as per their family needs and design sensibilities. You may think it is not as straightforward as buying an off-the-shelf property, especially if you plan to finance it through debt. But the good news is that several banks offer Home Loans that allow you to purchase land and build a house.
However, before applying for a loan, you should pay attention to the authenticity of land transactions and the money you will pay for this acquisition. Also, there are situations when lenders refrain from financing a land purchase. If you know that in advance, you could avoid applying and preventing a possible rejection from the lender. A loan rejection not only dents you emotionally, but also your credit score, reducing your chances of getting loans in the future. Hence it is important to consider some factors when applying for a home loan to buy a plot. In this post, we will discuss factors that are pivotal to a hassle-free land transaction and the subsequent loan journey. Let’s begin!
Factors to Consider When Taking a Home Loan for Plot Purchase
You should consider factors like the type of land you want to purchase, the loan deals you are expected to get, your affordability to such deals, and much more. Analyzing these factors and choosing the best home loan for plot purchase will make you feel much better. Let’s check out these factors now.
Type of Land
You can choose from residential, agricultural or industrial plots to buy. However, some lenders give a home loan for plot purchase, which will be used for residential purposes only. The reason for the same is that lenders can get a chain of landowners easily in a residential plot. So, if you are looking to buy plots other than residential, do check the website of the lender, dial the 24×7 customer care number or visit the branch personally to know whether they offer a loan for the same.
Check the Location of the Plot
Getting the home loan sanctioned for plot purchase will also depend on its location. There are many locations for which you can’t get a home loan from lenders. Some locations can have a long history of bogus land deals, forcing lenders to cancel loan applications meant to buy a plot there. Many lenders show on their website a list of locations where they can sanction a home loan for plot purchase. So, see whether the lender finances plot purchase in the location you want to.
Compare Interest Rates of Different Lenders
The interest rate determines greatly the pace of repayment on a home loan. The lesser the interest rate, the lesser the repayment will be and vice versa. Therefore, you should check the home loan interest rate (plot purchase) provided by different lenders, compare them and apply for the lowest one on offer. To help you do so, we have put the interest rates of different lenders below. Take a look.
|Lenders||Interest Rates (In Per Annum)|
|State Bank of India (SBI)||7.65%-8.00%|
|LIC Housing Finance||9.95%-10.05%|
All said, your plot acquisition rests pretty much on the loan amount you could get from lenders and the amount you need to pay from your end. Yes, a plot loan or a home loan for plot purchase, whichever you would like to call, is not financed fully. The finance is available to the extent of 70%-80% of the land cost, although the actual disbursal can vary from one lender to another. If you have any other loan running in your name, the lender will consider the same and decide the loan amount accordingly. Normally, lenders want the proposed EMI on plot purchase and other obligations to be within 50% of your net monthly income. Accordingly, they decide the eventual loan amount for you.
Knowing all these will help you estimate correctly the down payment amount that you need to pay to seal the deal. Not only the down payment, but you also need to pay towards registration at the registrar office of a particular location. You can check the cost of the same by contacting the office or on the website of the concerned housing authority.
When you take a home loan to purchase a home, you can get a maximum of 30 years to pay off the same. But in the case of a plot purchase, the maximum tenure can come down to 10-20 years. Considering the massive reduction in the loan tenure, the Equated Monthly Installment (EMI) can be higher compared to when you get more time to pay the loan. So, your income needs to be sufficient to accommodate your EMI while also ensuring you don’t face any payment hassles.
Check Whether the Lender is Offering You a Straight Plot Loan or Something Extra
While some lenders offer you a loan directed towards the purchase of a plot only, some give you loans to buy a plot and construct a home on the same. The second type of loan is a composite loan. However, lenders can add a construction clause to a sole plot loan too. They might give you 2-5 years to begin the construction. So, check all that with the lender when you take a home loan for plot purchase.
Apart from the down payment amount and registration cost, you also need to pay the processing fee on a home loan for plot purchase. The fee can either be a percentage of the loan amount or a flat sum. Check out here the processing fee of different lenders.
|SBI||0.40% of the loan amount|
Minimum - INR 10,000
Maximum - INR 30,000
|HDFC Limited||0.50% of the loan amount or 3,000, whichever is higher|
|ICICI Bank||1% of the loan amount|
|LIC Housing Finance||Upto INR 1 crore - 0.25% of Loan Amount or INR 10,000, whichever is less|
More than INR 1 crore - INR 25,000