Looking for a Land Loan? Points to Remember!
Land Purchase Loan
Land purchase loans or plot loans as they are commonly called are loans given to borrowers interested in buying a vacant plot of land and then building a house or apartments on the same. The lending is done only for non-agricultural land.
How much can I get for buying a plot?
Most lenders have a higher limit of 80% of the cost of the plot for the sake of lending. Even this 80% is for plots of land, which are being bought from developmental authorities or reputed developers inside city limits. For plots out of the city limits the maximum that most lenders will fund is 70%. One must also keep in mind that 80% and 70% are the higher limits; the average in most cases is around 50-60% only, based on the location of the property, total value of deal etc. Another major negative with a plot purchase loan is that the tenure is lesser compared to a home loan. It is rarely above 15 years.
What are the interest rates?
The interest rates offered to lenders for purchase of plots is slightly higher than the rate of interest offered for buying a house. This can be a higher if the land is purchased only for the sake of holding.
How do I get the loan?
The procedure is almost the same as for any other loan. Even the charges like processing fees will be applicable. Major differences to others loans is with the documentation process.
Documents To Be Provided
The documents for proof of income include salary slips showing all deductions, Form 16 and a recent salary certificate for salaried professionals. For the self-employed or businessmen, IT returns for at least last two years along with the bank statements and income statements need to be provided.
The documents to be provided for the plot are as below:
- Copy of plan including the site plan which has been approved by relevant authorities
- Copy of building permit issued by the relevant authorities
- Encumbrance certificate from the registrar for a minimum of last 15 years.
- All the title deeds including the original
- A certificate from an authorized lawyer indicating a clear title to the land
- An estimate for the construction of house from an engineer or an architect
- Affidavit from the borrower indicating a commitment to stick to sanctioned plan
- Land tax receipts
- Possession certificate
Note: Although getting a loan can help you buy a plot of land, it is worthwhile to wait and save money to buy the plot. A higher interest rate, the speculative nature of land prices and the associated costs make it an asset that is better purchased in cash rather than by taking a loan.
Tax Implications on Land Loan
A plot of land is not a house property under the domestic laws act. Hence, various deductions/concessions that are available on repayment of loan amount towards principle when taken for acquisition of house property and interest are not applicable equally on money borrowed for purchase of plot of land. Income tax benefits applicable for home loans are not applicable to loans taken for purchase of plots till construction of house begins.