Difference between Home Loans and Land Loans

Banks and non-finance companies such as Bajaj Finserv offer both home loans and land loans to applicants who want to acquire a property. Borrowers avail home loans for already constructed properties, under construction properties, or those that will be constructed in the future. However, those who wish to purchase land, whether for building a house or purely for investment purposes, may not qualify for a home loan and instead have to go for a land loan.

Although the application processes, terms, and conditions, including the tenure of the loan is nearly same for both home loan and loan for land purchase, some fundamental differences exist between the two. These are mainly in terms of rules, eligibility, tax implications, etc.

While borrowers can avail home loans on all approved properties independent of their location or size, they can avail land loans to fund the purchase of a vacant plot that is:

• Not located within a village
• Not located within an industrial area
• Situated within corporation or municipal limits
• Non-commercial
• Non-agricultural
• Residential

Benefits of Home Loan

Banks and non-financial companies also provide land loans or plot loans to salaried and self-employed Indian residents with ages 21 years and above, and who have a good repayment history. Resident Indians can avail land loans for buying land to construct a home or as future investment. Banks offer up to 80 percent of the home value as a loan to applicants of home loans. Borrowers of home loans also qualify for tax deduction on payment of the principal amount under Section 80C of the Indian Income Tax Act, and for the interest component under Section 24(b) of the Indian Income Tax Act.

Additional Read: Home Loan Tax Benefits under Section 24, 80EE and 80C

Home Loan Interest Rate vs. Land Loan Interest Rate

Banks and other lenders charge interest rates in similar terms for both home loans and land loans. However, they charge home loan interest rates a few basis points lower than the interest rates for loan for land purchase. Although the lender charges additional processing fee for both types of loans, they may make some minor differences based on the profile of the borrower.

Also Read: Know about Different Types of Home Loans

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