Plot Loan

Land Loans

A land is a good investment which grows in value over the long-term. Hence, it gives better returns at the resale. Historically Indians have been purchasing lands or plot for various purposes predominantly as an investment.

A Land loan or plot loan as the name suggests is a loan provided by banks to borrowers for the purchase of a plot of land. The repayment is done in Equated Monthly Instalments (EMI) within a specific tenure prescribed by the bank. If you are looking for a land loan, the following information will help you choose the best lender.

Advantages of Taking A Land or Plot Loan

• Land as a resource is limited and thus making it a worthwhile investment which gives better returns on a resale.
• Plots can be considered as affordable comparative for individuals
• As an investment purchasing a piece of land has little or no waiting time
• Gives the buyer the freedom and flexibility to start building their own house according to their specifications

While there are many advantages, there are also some disadvantages of that need to be taken into account by buyers, this include lack of tax benefits and lower LTV which we will get to in detail shortly.

Different Types of Land Loans

Land Loans can be undertaken by individuals for the following reasons

• Purchasing of plot directly from a real estate development authority or housing society
• Purchasing of plot through resale directly from lender or through agents

Pre-requisites for Land Loans

• The land or plot of your choice must be purchased strictly for non-agricultural purposes
• The land should be approved by the local authorities and must have relevant documents during the time of purchase

How is Land Loan different from Home Loan?

This is a common query that is raised when discussing about land loans and plot loans, at first sight they do seem to meet the same purpose, but they are quite different as we shall see

Difference 1: A home loan is provided for a property that is built, under construction and or undergoing restoration and extension, while a land loan is predominantly given for purchase of a piece of land or plot

Difference 2: The Loan to Value ratio for a home loan is about 80%, for loans above 3 lakhs the LTV is 90%; while the LTV for a plot is 50-70%

Difference 3: The tax benefits which are available on a home loan are not available on the land and plot loans

Difference 4: Home loans tend to be longer up to 30 years even, while the land plot loans are extended up to 15 years

Difference 5: Another factor that is considered while taking up a land loan is the presence of 2-5% of foreclosure charges that are absent in a home loan. These are the primary differences between a home loan and a land loan.

Credit Score and Land Loan

For any loan applicant, a credit score is an important facet that is considered by banks and other lenders when they are about to make lending decisions for any loan including your land loan. It is the onus of the applicant to maintain a good credit health especially for those who are looking to take big ticket and medium to long term loans, the presence of a poor credit score or no credit score could lead to unwanted situations such as unfavourable terms or sometimes even rejection.

To avoid loan rejection, learn more about your credit health, start with your free credit score.

Land Loan Features

Lenders provide land loans for the purchase of land to build your dream home for both salaried/self-employed people. One point to remember is that some banks or NBFC give land loans with the condition that the borrower build a house within 2 to 5 years from the date of loan disbursal. The number of years varies from bank to bank.

Key Features of Land Loan

• Low Interest Rates – Provide a competitive interest rate that is the lowest in the industry
• Low Processing Fee – Don’t lose out on your loan amount in the form of processing fee
• No Pre-Payment Penalty – You can complete the loan whenever you want without any penalty
• No Hidden Charges – All the charges will be communicated upfront hence no hidden charges
• Interest charges on Daily Reducing Balance – Continuous reduction in interest paid
• The maximum repayment period could range between 10 to 15 years depending on the policies of the bank.
• Some banks provide concession for women borrowers

Eligibility Criteria

The following are the eligibility criteria for land loans

Other Charges

Pre-sanction

• Advocate's fee for property search and title investigation report.
• Valuer's fee for valuation report.

Post-sanction

• Stamp duty payable for Loan agreement & mortgage
• Property insurance premium
• CERSAI Registration Fee of Rs 50 + GST up to Rs 5 Lakh limit; and Rs 100 + GST for limits above Rs 5 Lakh

Land Loan Documents Required

ID & Address Proof (Any One Required)

• Aadhaar card
• PAN card (Mandatory, if income is considered for loan eligibility calculation)
• Valid Passport
• Voter ID card
• Driving license
• Utility Bill: Electricity, Telephone, Postpaid mobile, water bill etc.
• Ration card
• Letter from employer
• Bank statement /copy of Pass book reflecting address
• Valid Rent Agreement
• Sale Deed

Salary Documents

Salaried Individuals

• Salary slips for the last 2 months or salary certificate
• Cash Salary – Income details on Company Letterhead (Salary up to Rs.30, 000 p.m.)
• Copy of bank statements for the past 3 months (salary account)

If variable components like over time and incentives are reflected, then salary slips for the past 6 months are required.

Self-Employed Professional

• Certificate of qualification for professionals: CA, Doctors or Architects
• Copy of last two years’ income tax returns, along with computation of income
• Copy of last two years’ P/L account with all schedules and audited balance sheet, wherever applicable.
• VAT or Service Tax returns or TDS Certificate
• Bank statement for the last 6 months (Savings account, current account and O/D account)

Self-Employed Non-Professionals

• Copy of your last two years’ income tax returns, along with computation of income
• Copy of last two years’ P/L account with all schedules and audited balance sheet, wherever applicable
• VAT or Service Tax returns or TDS Certificate
• Bank statement for the last 6 months (Savings account, current account or an O/D account)

Property Documents

• Allotment letter from builder
• Agreement of Sale
• Registration and stamp duty receipt
• Index- ii
• NOC from builder
• Own Contribution Receipt (OCR)
• All builder linked documents
• Development Agreement
• Tripartite Agreement
• Partnership Deed
• Sale Deed
• Title Search Report
• NA order

EMI Payment Methods

Your land loan can be repaid in following two ways.

Standing Instruction (SI): If you are an existing account holder with lender, Standing Instruction is the best mode of repayment. Your EMI amount will be debited automatically at the end of the monthly cycle from your bank account you have with the lender.

Electronic Clearing Service (ECS): This mode can be used if you have a non-lender bank account and would like your EMIs to be debited automatically at the end of the monthly cycle from this account.

Post-Dated Cheques (PDCs): You can submit post-dated EMI cheques from a non-lender account at your nearest lender bank Loan Centre. A fresh set of PDCs will have to be submitted in a timely manner. Please note Post Dated Cheques will be collected non-ECS locations only.

Land Loan Eligibility Check

Before a person applies for a land loan it is best to do an eligibility check which is available on the lender website and at CreditMantri.com This way your credit score will not be affected as the bank will only soft pull your credit score and compares with other internal criteria to make sure you are eligible.

Land Loan EMI Calculator

Customers can use the home loan EMI calculator to know how much EMI they will be paying each month. Customer can make use of the CreditMantri Home Loan EMI calculator and the lender Home Loan EMI calculator.

The importance of this is that customers will know how much EMI they will have to pay based on their loan requirement. This helps them to plan far ahead.

CreditMantri’ s Home Loan EMI Calculator and lender Home Loan Calculator are among the best and probably the easiest ways to compare various home loan offers and choose the loan best suited to your requirements. Using the Home Loan EMI Calculator, you get a simple and quick way to accurately compare the various loans and determine what your EMI will be with the different lenders.

Land Loan FAQs

1. How can I apply for a land loan?

Banks and NBFCs provides customers multiple ways to apply for a land loan. It can be from anywhere using the online and customer care facilities or visit the nearest branch to talk to a representative to discuss the options and then apply. Customers can choose any one of the option they are comfortable with.

2. How long will it take for land loan approval?

It will take at least 1 week for the bank to do their due diligence and verify all the documents.

3. What is the maximum loan amount I can get from Land Loans?

It depends on the policies of the bank. Most of the banks give land loan up to 75% of the value of the property. However, if the amount is lower than 75 Lakhs, you can get up to 90% of the value of the property.

4. What is the processing fee for land loans?

The processing fee varies based on whether you are a salaried person or self-employed person. Also, it will vary based on the loan amount you opt for.