It is said that when you bake a cake from scratch, it is more satisfying than buying a baked one. If you prefer and want to construct your own house, land loans are meant for you. To put it simply, land loans finance your purchase of a plot of land on which you may either begin construction immediately or wait a while before commencing. This loan is usually availed of if you do not want to incur an immediate cash outflow. As there are difficulties with documentation and the unwanted possibility of encroachments, not all HFIs offer land loans.
- Apart from the usual documents needed for Home Loans, you also need to submit the following docs.
- Original documents regarding land ownership.
- 'No Encumbrance' certificate for the land.
- The layout or the drawing of the plot, approved by the Town Planning Authority
- Revenue receipts and land records for the plot of land.
- Tax receipts for taxes paid by the owner of the plot of land.
As of now there are no tax benefits for Land loans but once your land loan is converted to a Home Loan for the construction of your house, all the tax benefits are applicable.
The general terms and conditions applicable to Land loans are as given below:
- Most Housing Finance institutions insist that the purchase of land is from a development authority or society and some also allow purchase from developers. Purchase of land from an individual owner is not usually financed by HFIs.
- The land has to be developed and boundaries must be clearly demarcated. The location of land is also extremely important and most HFIs only finance those plots that are within the limits of the Concerned Municipal Corporation.
- The maximum loan tenure offered by a HFI for the purchase of land is 10 years and they either charge around 1% of the loan amount as fee, or they charge a flat amount.
- Limits regarding the maximum and minimum loan amount lent for plot purchase are demarcated by HFIs and differ from HFI to HFI depending on the schemes they offer.
- Age norms, eligibility calculations and repayment of land loans are similar to those of normal Home Loans.
- The limit on the LTV ratio financed for land purchase varies from HFI to HFI from anywhere between 70-80%.
- Depending on the type of land, some HFIs insist on additional/collateral security, while for most, loan security occurs in the form of an equitable mortgage by taking deposit of the original title deeds of the plot of land.
- As always, unless you have paid a sum to buy the land, the disbursement is in favor of the seller of the plot. Normally, HFIs do not offer loans to plots of land purchased over six months ago.
- The rate of interest on a land loan is usually similar to the rate of interest charged on regular Home Loans.