If you plan to buy a plot of land and build your dream home on it, you might wonder how to finance your purchase. You might have heard of home loans, but did you know there is a particular type of loan to buy land? It is called a plot loan, and it can help you acquire the land for your future home. This piece will inform you about plot loan in India, such as what it is, how it works, their features, benefits, eligibility criteria, interest rates, and how to apply for them.
What is a Plot Loan?
A plot loan is a unique banking instrument that makes it easy to buy land. The contrast between a plot loan and a home loan is that a plot loan can only be availed to buy land for constructing a house.
A plot loan is usually given for residential plots approved by the local authorities or development bodies. The plot should be within the municipal or corporation limits or the urban development authority limits. The plot should also have clear titles and no legal disputes. The lender will verify the ownership and authenticity of the plot before sanctioning the loan.
How Does a Plot Loan Work?
A plot loan works similarly to a home loan, except it is given for buying land instead of a ready-to-move-in property. The borrower has to repay the loan in equated monthly installments (EMIs) over a fixed tenure. The interest rate on the plot loan depends on various factors, such as the loan amount, the loan-to-value ratio (LTV), the borrower’s credit score, the plot’s location and type, and the lender’s policies.
The LTV ratio is the percentage of the plot value that the lender will finance. For example, if the plot value is Rs 50 lakhs and the LTV ratio is 80%, then the lender will give a loan of Rs. 40 lakhs, and the borrower has to pay Rs. 10 lakhs as a down payment. The LTV ratio for plot loans is usually lower than that for home loans, as lenders consider plot loans more risky.
The duration of the plot loan can vary, typically from 5 to 30 years. This depends on both the lender and the borrower’s ability to repay. Additionally, specific lenders might provide flexible repayment choices, including options for prepayment, partial payment, or transferring the balance.
Benefits of a Plot Loan
A plot loan has several features and benefits, making it an attractive option for land buyers. Some of them are:
- A plot loan can aid you in buying a plot of land at your preferred location and size, which may not be possible with a ready-made property.
- A plot loan can also give you the freedom and flexibility to design and construct your house according to your taste and budget.
- A plot loan can also help you increase your asset value over time, as land prices tend to appreciate faster than property prices.
- You can enjoy tax perks under different sections of the Income Tax Act. These perks apply to both principal and interest amounts.
Eligibility Criteria for Plot Loans
While requirements vary, common factors include:
- Age: Borrowers are typically aged 21 to 60 (salaried) or 65 (self-employed) at loan maturity.
- Income: Stable income sufficient for EMIs is crucial, supported by income tax returns, bank statements, and payslips.
- Credit Score: A high credit score (preferably above 750) helps secure better interest rates.
- Plot Details: Provide plot specifics, including location, size, layout, and legal documents for lender verification.
How to Apply for a Plot Loan?
Applying for a plot loan involves:
- Comparing lenders and choosing the best deal.
- Using PMAY subsidy calculator and plot loan calculator to check affordability
- Fill out an application form online or at the lender’s branch.
- Undergoing eligibility, income, credit score, and plot verification.
- Receiving loan approval and disbursal, with the borrower paying the down payment and fees per the agreement.
A plot loan is a great way to buy land and build your dream home on it. It can help you save on taxes, increase your asset value, and give you the freedom and flexibility to design your house. However, before applying for a plot loan, you should do your research well, compare different lenders, check your eligibility. And affordability, and read the terms and conditions carefully. You should also repay the loan EMIs on time and avoid defaulting on the loan. A plot loan can be a rewarding investment if you use it wisely and responsibly.