Are you planning to buy a house but are not satisfied with the design of the already available houses in the market and want to put your own creativity in building your own Dream House by buying a plot?

Or are you planning to buy a plot for your investment purpose and later on construct a house on it or just resell it after the value of the plot which you bought increases?

And are you wondering whether there is really any type of loan that exists to buy a plot?

If above are the questions which are delaying you in achieving your dream of buying a plot?

Then you have landed on the right platform.

YES, A Loan named as Plot Loan exists!

Here are the things which you should know with regards to buying a plot by applying for a plot loan.

Eligibility Criteria:

Most of the banks’ eligibility criteria regarding the age groups of the applicants are between 21 to 70 years and depending on whether he or she is a salaried or self-employed, The maximum age at the time of maturity will vary.

The salaried claimant must have a disciplined source of income and more than that he must fit into the specified income criteria. Whereas a self-employed claimant must have been in the business consistently as per the specified number of years.

Geographical Aspects:

Majority of the banks will allow you to buy plots only within the municipal or corporation limits.

If the local development authorities have allotted plots for purchasing, then also you are eligible for the plot loan facility.

Repayment History:

A good CIBIL score and a disciplined repayment history is a must to avail the benefits of a Plot Loan.

How much Loan Amount can be Sanctioned and what are the Interest Rates?

The sanctioned amount depends on the internal credit guidelines of respective banks. However, you can get up to a maximum of 70% of the total market value of the plot.

The interest rate treatment for the plot loans is expected to be the same as that of the House loans.

The Interest rate applied can be of two types:

1. Floating Interest Rates: These are the rates which keep on changing from time to time.
2. Fixed Interest Rates: A fixed interest rate is an interest rate which is fixed. However, the fixed Interest rate can convert automatically to floating interest rates after a period of time, for instance, after 3 years.

HDFC Bank is one of the banks which offers loans with both the Fixed and Floating Interest options.

What is the Treatment of the LPV Ratio on Plot Loans?

The Loan to value ratio in terms of Plot Loans is lower than the Home Loans. If the LPV ratio is low then the cost of the loan will also be less.

What is the Tenure of Plot Loans?

The tenure for plot loans is between 10-15 years. For Instance, SBI gives 10 years for the repayment of the loan and HDFC gives 15 years. However, Some NBFCs like Dewan Housing Finance provides 20 years tenure for plot loans.

The loan tenure for plot loans is lesser as compared to home loans tenure which can go up to 30 years. But do keep in mind that a shorter loan tenure means a higher EMI.

Thus it is very necessary that you have enough cash flows to aid the repayments.

Nuts and Bolts to Not Forget :

1. Limited Time Period:

Do you know that besides applying for a plot loan to buy a plot, you can also apply for a loan to construct a house on it?

There exists this fantastic 2 in 1 loan facility which will help you in fulfilling your goal of constructing your Dream House, however, the only thing to keep in mind is that you should not be lazy and complete the construction within the given time.  

For example, SBI Realty Home Loan not only gives you a benefit of purchasing a plot but also offers you a separate loan if you want to construct a house on it.

The SBI Realty Home Loan mandates you to complete the construction within 5 years from the date of approval.

If you fail to do this, the bank can take one of the two actions:

1. Ask you to foreclose the loan.
2. Penal interest will be charged on the amount.

2. Fixed-rate loans consisting of prepayment penalty clause:-

There can be a prepayment penalty in terms of fixed-rate loans. A Prepayment penalty is a penalty which can be applied if you clear the debt ahead of the predetermined schedule.

3. Tax treatment on repayment of plot loans:-

Plot loans don’t offer any tax benefits unless you are constructing a house on it.

If you are planning to construct a house on that plot then tax benefit will be available on both the following portions of loan:

• The first loan is taken to purchase the plot.
• The second loan is taken to construct the house on the same plot.

Tax deductions will only be applicable if the construction of the house is completed.

For Example, You take a loan of 4,00,000 Rs to purchase a plot and after a year you take a loan of 2,00,000 Rs. Then the tax benefit will be given on the combined amount.