If you are toying with the idea of raising a loan to buy a property then it is vital to note that the provisions of home loan differ from one category to another. There are different provisions that come into force for loan taken to buy a house, a plot and a farm house. Let us learn more on this here.
Categories of property loan
Home loans are disbursed to enable buyers to buy a flat or residential house which could even be a property under construction. Land loan, on the other hand, is given for a land which will eventually be used for residential purposes.
For farmhouse, banks usually give loans to build a permanent structure in farm house. These loans are known as ‘agricultural term loans’ or ATLs and are meant for agriculturists.
Loans to build farmhouse
Loans to build farmhouses are treated differently from home loans. Some public lenders give loan for farmhouses. For instance, Central Bank of India runs 'Cent Agri-Farmhouse Scheme' wherein it gives loan for construction, repair, renovation and extension of agri-farmhouses. These loans cover a maximum of 80 percent of the project cost.
Bank of Maharashtra also runs a scheme for construction of farmhouse. The loan of an amount between ₹2 lakh to ₹50 lakh is disbursed only to people engaged in the farming occupation and for a maximum of 75 percent of total construction cost.
Likewise, Bank of Baroda offers loan for construction of farm building structures. This is also exclusive to the people engaged in the occupation of farming. This is given for a maximum of 85 percent of the total cost and there is no cap on the amount of loan.
A few similarities
Before jumping straight into differences, we can first deconstruct the similarities between a home loan and a land loan. Both these categories include due diligence undertaken by lenders. Also, the equated monthly instalments (EMI) options that are offered for these loans and the rules for co-applicants are quite similar for land as well as home loans.
Besides this, the process of applying for loan and interest rates are similar for both.
Some key distinctions:
Maximum tenure: Although one can choose the loan tenure based on personal preferences and income flow, the maximum tenure to repay a home loan is 30 years, whereas land loans can be repaid in a maximum time period of 15 years.
Tax benefits: In case of home loans, tax benefits are applicable for both principal and interest. On the contrary, the tax benefits are applicable only to cover construction cost in case of land loans.
Loan to value (LTV): It is the extent of the loan amount that one can get against the value of the property.
In case of home, the loan to value ratio varies between 75 percent to 90 percent and for land loans, this ratio varies between 75 percent to 80 percent. In case of farmhouse construction, the maximum LTV is between 80-85 percent.
In other words, the loan seeker must invest a minimum of 20 percent of the total value of loan, and in case of home loan — the minimum investment is 10 percent.