Although many people might not differentiate between buying a new house and buying a piece of land—both purchases would be referred to as buying property in common usage—there are differences that must be taken into account when looking for financing. A land loan helps you buy a plot of land on which you want to build a house, whereas a housing loan helps you buy an under-construction or resold property. A plot cannot be purchased with a housing loan. A land loan cannot be used to purchase a property that is partially finished or ready for occupancy.

If you’re looking to purchase a home or invest in a piece of land, you may be considering taking out a loan to finance the purchase. It’s important to understand the differences between home loans and land loans before you make a decision. Here’s a closer look at the differences between home loans and land loans and how to determine which one is right for you.

What Is a Home Loan? 

A house loan is defined as a sum of money borrowed from a bank or other financial organization at a specific rate of interest that must be repaid each month in the form of an EMI. You can obtain a mortgage loan for either personal or business use. The property is registered as security by the bank or the money lending business, regardless of its intended use. The lender has the legal authority to sell the property in order to recoup the unpaid loan amount in any circumstance when the borrower is unable to return the money to the bank.

House purchasers have two options when deciding whether to use home loans:

• Ready-to-move-in apartments or homes or an under-construction apartments or homes
• Residential plot

A home loan is a type of loan used to finance the purchase of a house. Home loans typically come with fixed or adjustable interest rates, and borrowers are typically required to make a down payment of at least 20% of the purchase price. Home loans are typically secured by the property, meaning if you default on the loan, the lender can take possession of the house.

Home loan borrowers can select an appropriate interest rate from the following options.

1. Fixed
2. Floating
3. Partly fixed
4. Partially floating

If you take out a home loan, you may also be eligible for income tax exemptions. Therefore, if you intend to purchase a luxury apartment in Chennai, it is now time to apply for a home loan from a bank or other financial organization.

What Is a Land Loan?

 A land loan is a loan used to finance the purchase of a piece of land. Land loans typically come with higher interest rates than home loans because the land is not considered collateral, so the lender is taking a greater risk. The terms and conditions of land loans can vary, but typically the loan is due in full within a few years

There are three different types of land loans available:

• Rough 
• Unimproved 
• Improved

You will be able to use this piece of property for residential purposes because land loans can be a flexible type of investment. However, compared to mortgages, the land loan application process is a little more complex.

Difference between Home Loan Vs Land Loan

1)  Loan to value (LTV )

The loan to value is the maximum loan amount you can obtain against property (LTV). The LTV of a home loan is higher than that of a plot loan since it is linked to the purchase of residential collateral. The LTV for loans under $30 lacs can be as high as 90%, but it can only be as low as 70% for plot loans. You must therefore put down a minimum portion of the purchase price, whether you intend to acquire a piece of property for personal use or as an investment.

2) Tenure

Housing loans have a significantly longer loan period than land loans do. The maximum period for home loans is 30 years, while the maximum term for land loans is 15 years.

3) Tax Benefits

Plot loan applicants are not eligible for tax benefits; however, those who take out house loans on completely built residential properties are eligible to obtain tax benefits on both the interest and principal payments. The amount borrowed to construct a plot is the only tax deductible. Although a land loan is supposed to be used to build a home, the fact that you are not eligible for an income tax credit for payments made toward the payback is by far the biggest drawback for those thinking about taking out one. However, you will qualify for tax benefits on that portion of the loan once construction starts on the purchased property. The loan amount that was used to construct your home on your taxes might be deductible. The deduction is only available for the year in which the building activity is completed.

4) Rate of interest 

Plot loans feature higher interest rates compared to homes. Home loans are currently accessible for about 7.50 percent annually, while plot loans cost between 8% and 10% annually. Plot loans are riskier than home loans since banks have collateral for home loans that they can sell quickly to recover costs if necessary.

There are many differences between the two types of loans, such as the fact that an NRI can obtain a home loan while only an Indian resident can obtain a land loan. In order to qualify for a land loan, the property must not be near a village or an industrial area and cannot be used to purchase agricultural land. However, you can purchase real estate from government development agencies, active cooperative housing societies, or apartment owners’ organizations, or from privately built dwellings with a land loan.

Make sure you’re well-informed before making a real estate purchase so you can choose what will be best for you long-term.