Banks provide loans for land purchase when funding is required to buy a plot or parcel of land, usually for residential purposes in urban areas. While the loan amount may vary, depending on the bank's policy and the borrower's eligibility, some banks also extend this financing option for land purchases in rural areas.
Land investment can be a valuable investment with a high potential for appreciation, although obtaining a land loan is more stringent than a home loan. It is possible to get a loan to purchase land by getting a home loan on a plot, submitting building plans, making a larger down payment, having a good credit score, understanding your debt-to-income ratio, and opting for equity loans.
Under Section 24 of the Income Tax Act, after the completion of construction and moving into your newly built house, you can receive a plot loan tax benefit on the interest paid towards your plot loan. If you convert your plot loan into a regular home loan that allows for this deduction, you can claim an annual deduction of up to Rs. 200,000 on the interest component of the loan. To convert the land loan into a home loan, you must provide your lender with the completion and occupation certificates.
Regarding land loan vs home loan, home loans can be used for ready properties, under-construction properties, or self-construction. Land loans, however, are only given to purchase residential land. Loan-to-Value (LTV) or Loan-to-Cost (LCR) ratio for home loans is around 75-90%, while for land loans, it is capped at 75-80%.
Home loans can be taken for 30 years, whereas a bank loan for land purchase is for 15 years. Tax benefits are available for home loans on both principal repayment and interest payment but not for land loans unless a house is constructed on the plot. Whether considering a plot loan vs home loan, both options offer their unique benefits and considerations.
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