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Plot loans by HDFC plot loan, SBI plot loan, etc., are even known as realty loans and are disbursed to mitigate the fund shortages to own a plot. Private and public sector banks provide such loans of up to 80 per cent of land price depending on their location, credit history of past loans, net annual income, the overall amount of prevailing loans and authentication of land documents according to records.
Note that conditions of the plot loan are often interchangeably used with a home loan and differ among lenders. Most lenders permit you to avail plot loan to buy land on the condition that residential construction will take place in a stipulated time period from the disbursement date.
Here’s what you require knowing if you are looking to get a plot loan from private and public sector banks –
How do banks assist you in getting the plot loan to purchase a loan?
Lenders offer plot loans to self-employed and salaried to mitigate the fund needs to own land. It is owing to the reason that banks simply maintain a stringent risk evaluation exercise before funding a loan. After all, the lenders lend against the bought land as collateral or security. Thus, banks conduct all the technical and legal property verification. This involves assessing land papers, NOCs (no-objection certificates), title deeds, etc.
How can you compute your plot loan proceeds?
Several calculations are conducted by lenders before they determine how much you, as an applicant, can borrow the fund. Private and public sector banks offer to fund as high as 80 per cent of land price based on parameters like –
EMI (equated monthly income)/NMI (net monthly income) ratio –
Lenders review your EMI payout credibility after income tax deduction and remaining NMI (net monthly income). Let’s understand what it is –
If your net monthly income equals Rs 75,000 and the lender offers a 55 per cent EMI/NMI ratio on the income slab, the maximum EMI proceeds that you can opt for equals 55 per cent of Rs 75,000.
Loan to value or LTV ratio –
Loan to value (LTV) is computed after assessing the property value and maximum loan proceeds that you want. This slab in percentage differs among financial institutions according to your income. For instance, if the land value is Rs 60 lakh and the lender’s LTV ratio is 70 per cent, the maximum loan proceeds you can avail is 70 per cent of Rs 60 lakh.
Major key features of a plot loan –
Loan eligibility
You must be an Indian with an age starting from 18 years and above to be eligible for a plot loan to buy land. Senior citizens of over 65 years can even avail of a loan on the terms that they must repay the amount at least before 70 years of age. Note that few banks even permit foreign nationals of non-Indian origin to take up a home loan for the goal of leasing land in India, provided the necessary permission is taken up by the Reserve Bank of India (RBI).
Joint loan
Lenders permit the co-applicant or primary applicant of the plot loan to simply share the loan EMI burden with the co-signer, who accepts to share the responsibility to pay the required loan if the former has defaulted. Also, there is a lower rate of interest benefits on opting for a joint loan.
A guarantor also can step in to support the plot loan application. A guarantor basically guarantees to clear off the dues when the latter is not able to repay them all or also bears a witness to your profile as well as repayment credibility.
Loan Type
Banks levy a floating interest rate on the term loan. The rate of interest is included in your loan EMI that begins from the next month of disbursement of the loan.
Down payment
Lenders might lend as high as 80 per cent of the property’s cost, and the remaining amount must be paid by you as a down payment.
Rate of interest
Typically, the floating interest rate of a home loan is applicable on a loan too, which presently ranges between 8 per cent and 13.50 per cent per annum. Few banks even provide a fixed rate of interest on plot loans, as there is zero transmission in the case of changes to the interest rate. However, it is generally higher as compared to the floating interest rate.
Other fees and charges
There are different other fees and charges included in your plot loans, like taxes involving stamp duty and GST, charges on preparing the plot’s valuation report, TIR (title investigation report), CERSAI report and other crucial service charges.
CIBIL score
If you are an applicant with a previous history of default payment who currently resolved the issue through loan settlement might witness an issue in getting a plot loan. In such a scenario, improving your credit profile and score is a must.
Loan disbursement
Submission of the required documents, property papers and legal and technical land authentication is a must process, which allows the lenders to decide whether to disburse the loan proceeds. Note that the loan is disbursed according to the agreement with the lender and seller.
Loan against property
This kind of loan is usually opted for by professionals or self-employed against their prevailing property or asset as collateral or security. Such loans hold flexible repayment choices with overdraft options.
Repayment mode
You, as a borrower, can link your salary account with the auto debit payment choice by ensuring the needed finance is available on the loan EMI deduction date.
Pre-closure penalty or charge
Lenders are not permitted to levy foreclosure fees or pre-closure charges if you, as a borrower, have opted for the floating interest rate on loan, according to the Reserve Bank of India (RBI).
Tax benefits
There are zero tax benefits if a loan is availed for the reason or purpose of only buying land. However, tax benefits may be claimed if you avail of an additional loan for building a residency on the bought land.
How can you apply for a plot loan?
To apply for the plot loan, you can approach the lender either through direct mode, i.e., physically visiting the lender or bank or through the indirect route, i.e., approaching the lender via an online channel. Either way, you can approach the lender and file a request for the plot loan.
