Everyone wants a house of their own or invest in a property to safeguard the family’s future. But the rising housing rates keeps many deprived of their dream. In such a case plot/land loan is a good alternative. You can buy a plot and later construct your own house. Plot loan or land loan is a type of loan offered exclusively for buying a plot or land. But the condition is that the house must be constructed on it. And whenever you decide to start construction on the plot, then you can apply for construction loan for the same.

Eligibility:

• Age should be between 18-60 years. This varies for each lender.
• Only resident Indians and NRIs are eligible.
• The plot or land should be a residential or commercial plot.
• Only salaried, self employed professionals and businessman can get loan for plot.
• Land should not be an agricultural or commercial land.
• And the land should come within the corporation or municipal limit.
• The most important condition is that construction on the plot should start within the stipulated period which is two years for most of the banks. This period starts from the date of first loan disbursement. However HDFC Plot/Land Loan has grace period of 5 years.

Loan amount:

Loan to Value: This ratio is between 70%-80%. However the actual value of the plot will be assessed by the lender irrespective of the value mentioned by the borrower. So for e.g. if the value of the plot is Rs. 70, 00, 000, then you can expect the sanctioned amount to be Rs. 49, 00, 000 (assuming 70%). Remaining money will have to be put from your own pocket. Check out home loan for low income earners.

Here are the financial institutions offering loan for plot:

• Banks: Almost every nationalized and public sector bank in India offers loan for purchase of plot/land viz. SBI, Axis, ICICI, Federal, Bank of India to name a few.
• Housing Finance Companies: LIC, PNBHFL, DHFL, HDFC, ICICIHFC and others.

Apart from these, you can also get loan from few co-operative banks.

Documents Required:

• ID proof: This includes Aadhaar card, PAN card, VoterID card, passport and driving licence.
• Income proof: Salary slips for last 6 months (varies for each lender), IT returns of last 3 years, form 16, bank statement of last 6 months.
• Property related documents: Title deeds, copy of allotment letter or buyer’s agreement.

Other features/charges:

• Since it is very different from home loan, banks will ask for pre-payment penalty. So check with the bank.
• Another disadvantage of the land loan is the higher EMI. Since land loan tenure is for short period, the profits earned are less compared to home loan. Because of this, credit lenders charge high EMIs.
• There is no income tax benefit in case of land loan even if the construction is done on the plot.

What happens when construction does not start within the stipulated time period?

This would result in increase in the penal interest which is 2%-3% above the loan rate. Or banks will reduce the loan repayment period. This will result in monthly EMI to shoot up. Third possibility is that the banks will ask the borrower to pay-off the remaining balance and close the loan.

Reasons for land loan rejection:

Amongst the factors mentioned above, following are the reasons of loan getting denied:

1. The plot is not in gated community as the risk of encroachment in individual plot is high.
2. Property is considered as the most profitable investment. However this does not apply to all. There are lands whose value might not grow as expected and in such cases likelihood of the borrower defaulting a loan increases. So location of the property plays a key role in evaluating the loan.
3. Credit history of the borrower should be good else application might get rejected. This is checked by every lender irrespective of the type of credit application i.e. credit card/car loan/personal loan/home loan etc. A poor CIBIL score will straight away result in land loan getting denied. Read tips on improving CIBIL score.
4. Insufficient documents: If you fail to provide all the mandatory documents especially income proof and land related documents, then application will get rejected.