Home Loan for Plot and Land

A plot loan is a type of mortgage. You can typically use the funds to purchase a piece of land in your dream location for constructing a home. Unlike home loans, which cover land acquisition and house construction within a specific timeframe, a plot loan is solely designed to purchase land. Thus, you can build your home whenever you are ready without being constrained by a fixed timeframe. However, before deciding on whichever option you find appealing, it is prudent to be well aware of both plot loans and home loans. So that you can choose the one that perfectly aligns with your preferences and needs. Hence, Urban Money presents details such as typical plot loan interest rates, benefits, types, eligibility criteria, required documents, applicable fees, and more.

Plot Home Loan Interest Rates 

Let’s look at the prevailing plot loan interest rates from various banks across India.

Bank Interest Rates (p.a)
SBI 9.40% onwards 
HDFC 8.50% onwards
Axis 8.70% onwards
Canara 9.25% onwards
Union Bank of India 8.40% onwards
Bank of Baroda 8.40% onwards
PNB 9.50% onwards
ICICI 7.85% onwards
Federal Bank 9.05% onwards
Karnataka Bank 9.12% onwards
Maharashtra Bank 8.50% onwards

Types of Plot Loans

Plot purchase loans come in various types to cater to different needs. Understanding these types can help you choose the one that perfectly aligns with your requirements. Let’s scroll down and learn about different types of plot loans:

Raw Land Loan

Raw land refers to purely undeveloped plots. I.e., lands without utilities or amenities like sewers, roads, or electricity. Securing raw land loans might be difficult as lenders consider it as risky. Consequently, you may encounter unfavourable terms, including high interest rates, a lower loan-to-value ratio (LTV), and a shorter repayment period, among other factors.

Unimproved Land Loan

Unimproved land refers to land with some basic utilities and amenities but not enough to support home construction. For example, the land may have water access but not electricity or roads. This type of loan is slightly easier and cheaper to obtain than a raw land loan but still more challenging and costly than an improved land loan.

Improved Land Loan

It is a type of plot purchase loan for owning land with adequate utilities and amenities to support a building/home. This type of land may have access to water, electricity, roads, sewer systems, and other pertinence that are inevitable for residential properties. Moreover, improved land loans are generally more cost-effective and less challenging to obtain, as lenders typically perceive them as less risky. Thus, the borrower can enjoy a lower interest rate, higher loan-to-value ratio (LTV), and longer repayment periods than other types of land loans.

Plot Loan Benefits

Here are some of the major benefits you can expect by availing a home loan for plot purchase only:

  • You can finance funds solely to purchase a plot and then build a house on it later at your discretion. 
  • You can obtain a lower interest rate than other types of loans, as plot purchase loans come under a secured/collateral loan.
  • You can benefit from a longer repayment tenure, spanning up to 15 years, making it a more borrower-friendly financing option.
  • You can enjoy tax deductions of up to Rs. 1.5 lakh per year on principal repayment (Section 80C) and up to Rs. 2 lakh per year on interest payment (Section 24).
  • You can also avail of features such as zero pre-payment penalty, lower processing fees, moderate eligibility criteria, minimal documentation, and more.

Plot Home Loan Documents Required

The following documents are required for a plot loan:

  • Proof of Identity: Aadhaar card, PAN Card, voter ID, or Driver's License.
  • Proof of Address: Utility Bills, Passport, Driving License, or ration card.
  • Proof of Income: Salary slips, bank statements, and income tax returns.
  • Other Documents: A duly filled and signed application form, two passport-sized photographs, a cheque for the loan processing fee, and property documents (if applicable).

Plot Home Loan Eligibility Criteria

The typical eligibility criteria for a home loan for plot purchase are as follows:

  • You must be an Indian citizen. 
  • You must be somewhere between 18 to 65 years old. 
  • You must have a regular and stable source of income that covers the loan repayment, either from salaried employment or self-employment.
  • You must have a good credit history; preferably, lenders view a credit score of 700 or above as ideal.
  • You must provide the plot details that you want to purchase, such as the location, size, layout, approval, title deed, NOC, etc.

Housing Loan for Plot and Land - Fees and Charges 

In addition to the plot loan interest rate, there are certain fees and charges you should be aware of before initiating your application. These primarily include the processing fee, prepayment fees, and late payment fees. Thus, hereunder, we outline the applicable fees for a plot purchase loan from leading lenders in India.

Bank Processing Fee Prepayment Charges Late Payment Charges
SBI 0.35% of the loan amount   Nil 2% p.a. (in addition to the applicable interest rate) on the overdue amount
HDFC Up to 0.50% of the loan amount or Rs. 3000/- whichever is higher   2% of the outstanding amount   Up to 18% p.a. on overdue instalment amounts
Axis 1% of the loan amount + Rs. 5,000 login fee   3% of the outstanding amount   Up to 24% p.a. on overdue instalment amounts
Canara Up to 0.50% of the loan amount   2% of the outstanding amount   Up to 24% p.a. on overdue instalment amounts
Union Bank of India Up to 0.50% of the loan amount    2% of the outstanding amount   Up to 18% p.a. on overdue instalment amounts
Bank of Baroda 0.50% of the loan amount, subject to a minimum of Rs. 8,500 and a maximum of Rs. 25,000. Nil Up to 24% p.a. on overdue instalment amounts
PNB 1% of the loan amount  2% of the outstanding amount   Up to 24% p.a. on overdue instalment amounts
ICICI 1% of the loan amount or Rs. 11,000/- whichever is higher 2% of the outstanding amount   Up to 24% p.a. on overdue instalment amounts
Federal Bank Up to 0.50% of the loan amount  Nil Up to 24% p.a. on overdue instalment amounts
Maharashtra Bank 0.25% of the loan amount or Rs. 25,000/- whichever is higher   2% of the outstanding amount   NA
Karnataka Bank 0.25% of the loan amount 2% of the outstanding amount   Up to 24% p.a. on overdue instalment amounts

Differences Between Home Loan and Land Loan 

The following table summarises the key differences between home loans and land loans:

Aspect Home Loan Land Loan
Purpose For both purchasing land and constructing a home on it within a specific time frame. For solely purchasing land but having the freedom to build a house on it in the future.
Tax benefits  Home loans offer tax benefits on both the principal and interest payments under Section 80C and Section 24 of the Income Tax Act, respectively. Land loans offer no tax benefits unless the borrower constructs a house on the purchased plot within a specified period.
Tenure Maximum loan tenure is typically up to 30 years. Maximum loan tenure is typically up to 15 years.
Loan to Value Ratio (LTV) Home loans provide a higher LTV of up to 90% of the property value. Land loans provide a lower LTV of up to 80% of the plot value.

Tax Benefits on Plot Loans

The tax benefits on plot loans depend on what you intend to do with the plot. Namely, you can only be eligible for these benefits if you construct a house on the plot that you bought with the loan amount. However, eligible candidates can enjoy a tax deduction of up to Rs. 1.5 lakh per year on the principal repayment under Section 80C. And up to Rs. 2 lakh annually on the interest payment under Section 24. These deductions are subject to certain conditions and limits, such as property ownership, loan purpose, loan date, etc.

Things to Remember When Applying for a Plot Loan

Consider the following tips to ensure a smooth and successful application process regarding a home loan for plot purchase:

  • Research Thoroughly: Understand the terms and conditions such as plot loan interest rate and associated fees with different plot loans offered by various banks.
  • Check Your Credit Score: A good credit score enhances your eligibility and may help you negotiate better terms and rates.
  • Evaluate Loan-to-Value Ratio (LTV): As different banks may offer varying Loan-to-Value (LTV) ratios, choose a lender whose LTV ratio aligns with your financial capacity.
  • Review Repayment Options: Evaluate the repayment options and assess their flexibility (if applicable), including factors such as tenure and EMI amounts.
  • Verify Property Documents: Ensure that the land you intend to purchase has complete and clear documentation, as banks often require thorough scrutiny of property documents.
  • Understand Fees and Charges: Be aware of processing fees, late payment charges, and any other fees applicable to the plot mortgage loan.
  • Seek Professional Advice: Relying on financial or real estate experts can also aid you in making a well-informed and cost-effective decision regarding your plot loan.
Urban Money