When planning to invest in real estate, one of the key decisions you’ll need to make is whether to apply for a plot loan or a home loan. Many people confuse what is the difference between what is a plot and home loan? The objective of both is similar such as sanctioning a loan to acquire a property but there are some differences that you should know while dealing with plot and home loan. Let’s understand in detail.
A plot loan is a loan meant for buying land or a plot. You can use it to build a house or for investment. This loan is only for buying land that means banks will sanction loan on the basis of land value and not for building or constructing anything else. Also, you need to know that Plot loans are only sanctioned for residential plots.
Purpose: To purchase a residential plot.
Eligibility: More stringent eligibility criteria. Such as in plot loan are sanctioned only after careful verifications.
Tenure: Up to 15 years.
Interest Rates: Often higher than home loan interest rates.
Tax Benefits: Only applicable to cover construction cost.
Loan to Value Ratio (LTV): Usually up to 75%-80% of the plot’s value.
Location of Property: It should be located in a municipality or corporation.
A home loan is a type of loan that helps you purchase a ready-built house, an under-construction property, or for constructing a house or an apartment on a plot you already own. Banks will sanction the loan based on the home value not the land value.
Purpose: To purchase or construct a residential property.
Eligibility: Slightly relaxed eligibility criteria compared to plot loans. Any person have a stable income with age between 21-65 years.
Tenure: Longer tenure, often up to 30 years.
Interest Rates: Generally lower compared to plot loan interest rates.
Tax Benefits: Comprehensive tax benefits under Section 80C and Section 24 of the Income Tax Act. Covers both principal and interest.
Loan to Value Ratio (LTV): Usually up to 75%-90% of the property’s value.
Location of Property: Anywhere for flat or residential home.
| Description | Plot Loan | Home Loan |
|---|---|---|
| Purpose | To purchase a residential plot. | To purchase or construct a residential property. |
| Eligibility | More stringent eligibility criteria. Such as sanctioned only after careful verifications. | Slightly relaxed criteria; stable income, age 21-65. |
| Tenure | Up to 15 years. | Longer, up to 30 years. |
| Interest Rates | Often higher than home loan rates. | Generally lower than plot loan rates. |
| Tax Benefits | Only applicable to cover construction cost. | Comprehensive under Section 80C and Section 24. Covers both principal and interest. |
| Loan to Value Ratio (LTV) | Usually 75%-80% of plot value. | Usually 75%-90% of property value. |
| Location of Property | Municipality or corporation required. | Anywhere for flat or residential home. |
Deciding between a plot loan and a home loan depends on what you want to do and your money goals. If you want to buy land and build a house, a plot loan could be right. But if you're buying a house already built or building on land you own, a home loan is better. Knowing the differences in purpose, time you have to pay, tax help, how much you can get, who can get it, interest, and where you can use it will help you pick the right one.
How can EazyBankLoan help you in taking a loan? We understand the process of procuring a loan can be stressful. That is why we take care of your Loan application process, saving you time and hassle by handling the paperwork and communication with the loan providers.
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No, plot loans are typically only sanctioned for residential plots. If you wish to purchase agricultural land, you may need to explore different financing options.
Tax benefits on plot loans are limited. You can claim deductions under Section 24 for the interest paid, but only if you construct a house on the plot and occupy it.
Yes, home loans can be used for purchasing a built house, an under-construction property, or for constructing a house on a plot you already own.
Plot loans generally have a shorter tenure, up to 15 years, while home loans can have a tenure of up to 30 years.
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