5 Facts You Know About Land Purchase Loan
Banking / Financial Services / Broking 13th November 2019
A land purchase loan allows you to purchase a plot of land or a residential plot. To ensure if you are an eligible buyer, lenders/banks assess your credit history and evaluate the value of the land you are willing to purchase. Obtaining a land purchase loan can be troublesome. You can take a land loan to receive a piece of land that is under the local development authorities and municipal limit or non-agricultural plot.
Things to be aware of before availing a land purchase loan -
- Construction of land must start within the specified time - The first and foremost thing that the construction of land must begin within the specified time. A construction loan can also be availed in the future to complete plot construction. The borrowers are not aware of the fact that the construction cost is covered in the loan. Lenders don’t easily approve of giving a land loan as land is not a revenue-generating resource. In case your construction doesn’t commence within the specified time, you will be asked to pay the outstanding balance and close the land loan, or the rate of interest increases by up to 2%. It’s advisable to make arrangements to start the construction by the grace period to avoid penalties.
- A detailed survey of land - Lenders need a detailed survey of the boundaries of land by surveyors. It’s important for you to know the land use restrictions and double-check zoning. You must keep the whole survey ready to present it to the lender. It’s a great advantage to have access to utilities in residential plots. Having access to water, sewer, and electricity saves a lot of money and time. Buyers will also have to double-check if they have access to public roads. It’s also recommended to find out what the immediate neighborhood’s property will hold in the coming years.
- Monthly installments - EMI’s should not be more than 40-50% of an individual’s income. The loan tenure depends on your income and age. If you are about to retire and have a young co-applicant, then the amount of the loan gets higher as the co-applicants income is also taken into consideration to determine if you are eligible for the loan. The EMI’s on land loans are high as the tenure of repayment of land loans are short.
- No benefits on Income tax - No income tax benefits are available on land loans. Interest paid before the construction is completed won’t be considered as Pre-EMI interest.
- Amount of loan - The LTV is 60-70% for a land loan. Generally, 80% of the property value is funded by lenders. They decide on an independent market survey.
Eligibility Criteria to avail a land purchase loan -
- The borrower must possess an excellent credit history for the last two years.
- Borrowers must not have any outstanding payments with other banks.
Documents required to avail a land purchase loan -
- Income proof is required to ensure that the individual has a stable income.
- A salary slip is to be given to make sure that the borrower is employed currently and can repay the loan.
- Lenders require previous two years tax returns to ensure that the borrower has no outstanding dues.
- Proof of residence is to be submitted along with the aadhar card.
The more the land is improved, the lesser will be the cost of borrowing. The offer documents contain all the necessary information and the terms and condition, so make sure that you go through it thoroughly.