Almost every individual in this world dreams of having his/her own home at one point of time in the life. But not everyone is so lucky to get one and those who get find it difficult to get it. As far as property buying is concerned, there are particularly two options – buy a plot and build a home of your own or buy a ready-made apartment. The choice of a particular type depends on one’s personal preferences and availability.
It is generally understood that getting home loans is not much difficult as today there are many banks that easily provide homes loans to interested people. While home loans are feasibly available for salaried employees, what about a loan to buy a residential plot? The good point is that plot loans are also available without too much hassle and, in most cases, at the same rates as a home loan. But other terms and conditions could be different. It requires a bit of planning.
The most basic different is the end use. It is a kind of loan which is procured to grab a piece land rather than an apartment. . The Loan to Value (LTV) for a plot loan could be lower than in a home loan. LTV is typically the ratio of the loan to the value of the property, in this case the residential plot.
There are several things that must need to be considered while seeking loan for residential plot.
- Rate of interest would be on a higher side in case of loan on plot compared to typical home loan
- Tenure will be low than home loan
- If construction does not start within stipulated period, bank may recall the loan or increase the rate of interest
- Plots require more due-diligence than ready property
- Buying developed plot is safer than standalone one
- Prepayment may attract charges if done within a particular period of availing the loan or if house is not constructed
For plot loans, both fixed and floating rate options available to borrowers. Some prominent lenders such as ICICI Bank, State Bank of India (SBI), Housing Development Finance Corporation (HDFC) and PNB Housing offer plot loans at the same rates as home loans. However, some lenders charge a higher rate on plot loans but this is case based on profile.
Don’t seek plot loan if you don’t intend to build the home in near future. Another important point to consider is that Borrowers can seek to get tax exemption on a plot loan only after completion of construction.
The application for plot loans is very much alike other types of loans.