Home Loans vs Plot Loans

The term house loan covers various kinds of loans like house renovation loans, bridge loans, plot loans, house construction loans, etc. Therefore, it is obvious that a plot loan is a kind of home loan. 

There is a misconception among people that home loans and plot loans are the same. Although there are some resemblances between them, both of them have several differences.

Differences Between Home Loans and Plot Loans

The differences between home loan and plot loan are as follows:

• The purpose and location of your property 

You can avail a home loan for buying any ready property, a property under construction or a resold home. On the contrary, plot loans can be availed for purchasing land, as long as you use the land for residential purposes. So, precisely, you cannot use a home loan for acquiring a plot of land or cannot apply for a land loan to buy a finished or under-construction property.  

• Loan to Value (LTV) and Loan to Cost (LCR) ratio 

The loan to Value (LTV) or loan to cost (LCR) ratio signifies the maximum loan amount you can get against the liquidation value of the home or land you intend to buy. Since you use the property as collateral, the LTV/LCR becomes larger on a home loan than a plot loan. 

In general, while applying for a house loan, a borrower can get a loan of nearly 75% to 90% on the cost of the property. However, for a plot of land loan, you can usually get a maximum loan (LTV) of 75% to 80% of the land value.

• Tenure of the loan

The home loan tenure happens to be fairly long when compared to the loan taken for land. You can avail of a home loan for an extended tenure of 30 years. However, when it comes to repayment of a plot loan, you can usually get a maximum period of 15 years.

• Tax benefits 

When you opt for a home loan, you can enjoy a tax deduction on the principal amount in addition to the amount you pay on interest. On the contrary, no tax benefit is available in a land loan unless you build a house on it. If you build a home on the land, you will be eligible for tax deductions, but you will get it only on the portion of the loan amount you have taken for constructing the building.

• Interest rate 

In comparison to house loan, loan on plots attract higher interest rates. Nowadays, for having a home loan, you may need to pay nearly 7.50% as interest annually, whereas you can generally avail plot loans by paying 8-10% interest per year. 

Eligibility Criteria of Plot Loans and Home Loans

Following are the eligibility criteria for plot loans as well as home loans:

• The applicant must be an Indian citizen
• The age limit of salaried persons and self-employed persons should be between 23 to 62 years and 25 to 70 years, respectively. 
• Minimum work experience of the applicant should be at least 3 years
• The experience for self-employed applicants should be at least 5 years
• An ideal CIBIL score of 750 or above is helpful

How to Apply For a Home Loan and a Plot Loan?

The steps to apply for a plot loan and housing loan are almost similar with each other. They are as follows:

Step 1: Visit the home page of a financial institution.

Step 2: Go to the “Home Loan” section.

Step 3: Select the “Apply now” button.

Step 4: An application form will pop-up in which you have to fill out the required details

Step 5: Scan and upload the necessary documents accordingly.

Step 6: Check the application form one final time and submit it.

Documents required for plot loans and home loans

Following are the documents required for plot loans:

• Age proof includes (Aadhaar card, PAN card, voter ID card)
• Address proof (includes Aadhaar card, utility bills)
• Income proof (comprises Income Tax Returns, salary slips, or business license details)
• Documents subject to your plot.
• Approved layouts of your plot.

Following are the documents required for a home loan:

• KYC documents that include PAN card, Aadhaar card, voter ID card, driving license, passport
• Income proof for salaried persons (includes salary slips of last 3 months, Form 16 or Income Tax Returns of last two years)
• Income proof for self-employed persons (includes Income Tax Returns of last three years, Business Licence Details, Profit and Loss statement of last 3 years, Audited balance sheet, and TDS certificate)
• Address proof (includes electricity bill, rental agreement, and water bill)
• Papers of the mortgaged property

Now, that you know the differences between a house loan and a plot loan, you can sensibly choose the one according to your needs. Keep the vital documents handy before you apply to speed up the application process and reduce chances of rejection.