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Plots loan, loan to buy property

To buy a piece of land, you can be eligible for a plot loan, and not a home loan.

Pooja Gawde

22 Apr 2008

You may be among the ones who prefer to construct your own house on a piece of land. To buy a piece of land, you will not be able to avail a home loan from the banks. Banks will offer what are known as 'plot loans' or land loans.

You can purchase a plot of land and construct the house immediately, or purchase a plot and wait prior to commencing construction.

Simply put, it is a loan to finance an individual's purchase of land. You could also go in for this loan if you do not want to incur an immediate cash outflow for purchase of land.

Not all banks or housing financing lending institutions extend land loans since there is difficulty in documentation and security of the property (risk of encroachments).

Most banks which offer these loans, insist that the land is purchased from a development authority or from a society.

Some banks also permit purchase of land from a developer. However, the land has to be developed and clearly demarcated for any bank to accept the proposal for land finance.

Plot loans are not available for purchase of agricultural land. Banks also don't permit loans for land already purchased and for purchase of land from an individual owner.

Getting finance for a plot is also difficult, because land can be purchased for speculative purposes, and valuation tends to be more difficult to assess.

Tax deduction benefits are not available on a plot loan.

In case of an under-construction property, tax deduction benefits will be available only from the financial year in which the construction is completed.

Interest rates on plot loans are about 2-3 per cent higher when compared to a home loan. Also, the loan tenure is smaller (up to 10 years) when compared to a home loan tenure.