How you can get a loan to buy a site and build a house on it later
Most banks offer loans to people who wish to buy a piece of plot to construct their dream home.
Available to resident salaried and self-employed people and also to NRIs, land loans enable you to purchase a residential plot of land.
What type of land can be purchased? A person who wants to buy an agricultural land cannot avail a land loan. A land loan is exclusively meant to purchase plots for residential purposes. Some banks require the land to be within municipal limits. Further, some banks add constraints that require the purchaser to begin construction on the land within six months to a year.
Is it suitable to you?
There are a few factors that influence an individual's decision to construct his house himself. The price situation is one. Investing in a plot and building a house yourself can at times be less expensive. Also, you can pace the construction to suit your finances and economic constraints.
Building an independent home enables the owner to implement his creative design ideas and colour schemes. Further, you have the flexibility to postpone major expenses, improvements and expansion to a later date.
How different is it from home loan?
The rate of interest charged on a land loan is on par with the rate charged on a home loan. Unlike home loans, you cannot claim income tax deductions on interest paid on land purchase loans. When you take a loan for construction on the site, you become eligible for tax break. Here you can claim tax benefits on both loan for land purchase and loan for house construction.
Tax deductions will be applicable only in the year in which the construction is completed after submission of completion certificate from authorities concerned. The principal repayment you make is eligible for income deduction under Section 80C. In case the property is self-occupied, a maximum interest deduction of Rs 1.5 lakhs can be claimed under Section 24. Your taxable income falls by this amount.
People who seek a loan to buy a plot have to pay a larger down payment. The loan-tovalue (LTV) ratio is sometimes as high as 70 percent. Usually, a person seeking a home loan has to make arrangements for only 20 percent of the cost of property.
The tenure of a land loan is usually 10 years. On the contrary, a home loan tenure can be as high as 25 years.
It is prudent to hire the services of a lawyer to verify legal documents associated with the plot of land. Verify the layout drawing of the site as approved by the town planning authority, and no encumbrance certificate of the land.
Other property documents include original documents pertaining to ownership of land, revenue receipts, land records and tax receipts.
Some documents you need while applying for a land loan:
- Original site ownership documents
- Tax receipts for taxes paid by the owner
- Layout drawing
- Revenue receipts
- No objection certificate from society for sale and transfer of land
- No encumbrance certificate for the land
Source: TimesofIndia Grihapravesham Dt:29-1-2011