Looking for a land loan? Here it is everything that you should know about – before purchasing land and before going for a land loan.
To build a dream house of your own with your specifications and requirements with modern amenities along with gardening, lawn with a swing char, duplex bungalow with 5 bedrooms, indoor pool, mini theatre, and to your countless imaginative specifications need a piece of land/plot to erect your house of dreams. Owing a land to construct your house is not very easy especially when you are dwelling in a metropolitan city like Mumbai. There actually exists limited scope for horizontal expansion for real estate due to the scarcity of land resource availability, and hence many times our dreams don’t realize in reality. But, with a note “One day you will make your dream come true”, you move on thinking to make one such investment inland in the future to fulfill your dream. Sounds exciting, but remember the decision to buy a land comes with its own merits and demerits.
Here is what you should know before considering buying land.
1) Choice and selection of the plot /land for investment make a lot of difference with reference to its location, accessibility, road connectivity, water & electricity supply, sewer and drainage systems, neighborhood – markets, hospitals, power stations, etc. and as well as the shape and direction of the plot. If not chosen and considered correctly, an investment inland would be a dead investment as there would be no future scope for appreciation in the land prices.
2) The FSI for the /land plot – it is important that you understand the concept of FSI for land purchase. FSI means maximum area allowed for construction on the piece of land which largely depends on the location of the land. The other related aspects that determine FSI are land carrying capacity, solid waste disposal, road connectivity, adequacy of water supply. FSI varies from state to state and region.
3) Investment in land is feasible for those looking out for construction of property on that piece of land. Although appreciation in the value prices of land is profitable over years it does not source income until the land is sold or developed & constructed. Till such a holding period, the investment on land is a dead investment. On the other hand investment in house generates a regular flow of income for you when it is rent out. A regular per month rent + appreciation in the value of the house price equals the overall appreciation gained on the land investments over the years.
4) Ensure that there is no legal dispute on the land you wish to acquire. Legal disputes such as plot are not NA plot i.e. the land is agricultural land, the land is already mortgaged or is pledged multiple times, the land is being sold to more than one buyer, the land claim of legal heirs, the land has been notified for govt. projects or special purposes, land boundaries, litigations on land, etc. are very important, to ascertain that the land is free from any encumbrances and has a free marketable title.
5) Remember by default all land in India is defined as agricultural land unless it’s defined for some other purpose by the government. There are different types of NA like NA – commercial, NA – residential, NA – warehouse, NA – resort, NA – IT. An NA plot of a particular type can be used only for only that particular defined structure which means and NA – warehouse plot cannot be used for making residential schemes and sell to the common-man; it can be used only to build a warehouse for commercial purpose.
6) Taking into account the scarce availability of land, the investors search for a piece of land beyond the boundaries of the city corporation limits. The investment made in an outskirt plots needs timely surveillance and proper fencing/boundary with an ownership board pointing towards the ownership name of the plot to avoid trespassing, as an empty plot is an easy target for the trespassers for illegal occupation.
It is therefore important that you purchase land that can easily be surveillance by you or your families.
7) Ensure that the seller of the plot/land be it builder or the individual owner or at times both being the joint owners has the legal rights to sell the land.
8) Ensure that the land documents are legal and complete. If required sought the help of the lawyer to be sure of the documentation and its title clearance. At the time of purchasing the land ensure that the land transfer documentation is complete. Important documents to look for are:
i) Title Deed: check if the title deed is in the name of the land seller and that he has a full right to sell it. Insist on looking at the original and not just a photocopy.
ii) 7/12 Document: is a revenue document showing the title, ownership, occupancy, liabilities, and rights pertaining to the land. It mentions how the land moved from one owner to another in the last 30 years.
iii) 6/12 Document: is a document showing the past transactions i.e. the record of change in ownership of land.
iv) Conversion Certificate (popularly known as DC conversion certificate): is issued by Deputy Commissioner (DC) certifying that the property is converted from agricultural land to a residential property.
v) Encumbrance Certificate (EC): it is a record that shows all registered transactions pertaining to a property in a particular time period. EC is helpful in ensuring a clear and marketable title of the property. Normally the EC is for 13 years, but for buying a property it is suggested that you ask for 30 years EC.
vi) Land Use Certificate: it verifies that the land is not in the commercial, industrial or agricultural zone.
vii) Release Certificate: it is a certificate from the bank stating the loan on the land has been completely repaid and the land is no longer pledged. In the case of joint owners of the land, ask for a release certificate from each owner to be sure that no single owner has pledged his share of land.
viii) 8/A Extract: this booklet contains the details of payment of tax, land revenue tax, types of crops grown, owner’s name, etc.
ix) Land Survey Sketch: land surveying is commonly used to establish the legal boundaries for land/plots. It is required of you to hire a certified surveyor to certify the boundary of the land that can match the actual dimension with the approved sketch from the survey department.
x) Original tax receipts and other bills relating to the plot.
xi) Approval documents by the city development corporation verifying that the plot/land is approved by them.
Knowing the fact that legal cases on lands can go on for decades, make every possible inquiry for the land and its legal formalities & documentation. You may hire a local competent lawyer who is well versed with all local laws who can help you in the land transactions without facing any legal trouble.
9) A land investment attracts the wealth tax equal to 1% on the net worth exceeding 30lakhs after adjusting the debts, for the land more than 500 sq meters.
10) Land purchasing requires maximum own contribution to an extent of 30% of the value of the land deal since plot funding by financial institutions like Banks & NBFCS provides a maximum loan of 70% only.
To sum up the important points for buying land:
- NA plots with clear titles are limited and scare and often you will have to pay a good price for it.
- Do not hurry to make a deal. Be patient and don’t fall prey to the sales tactics of the salesman. Make your own study, visit the plot, check the documentation, check the nearby development, look out for the main features of road connectivity, water supply,
- Talk to the local people nearby on the points that concern you, like plot pricing, land approvals, ownership, etc. Also search for the project and other related matters with respect to its geographical position, accessibility, etc. online to match the features as described by the plot/land seller.
- Make more than one visit to the plot – especially one when your salesperson is not on the site, this might source you additional information on the plot which might be new to you.
- Never settle for the sales price offered by the land seller. There is always a room for bargaining in India.
- At times soil test is important to be carried out especially if you are buying a piece of agricultural plot, just to be sure what crops can be grown on the field.
- Before finalizing make sure for our arrangement of funds as our own contribution to the land purchase is high (30%).
- For the rest 70% funding, it is advised you approach the lender Banks/NBFCS prior hand, as there are not many lenders who provide land loans and those who provide has its own set of guidelines towards the funding norms against the land.
To know more about funding on land lets learn more about land loans.
What Is Land Loan?
A land loan is financing that allows you to purchase a piece of land or plot wherein the land has to be within the hub locations limit of municipality. A land that is outside the municipal limits but allocated by the development authority is also eligible to qualify for a land loan. A land loan is sanctioned only for the purchase of a residential piece of land or plot. It is also referred to as plot loan.
Like any other loan, the land loan is also repaid in EMIs and is availed for maximum loan tenure of 15 years. The lender charges the interest rates on the principal loan amount availed by the borrower. The rate of interest for land loans is higher in comparison to a typical home loan, reason: land loans are considered riskier transactions by the lender because it is complicated to figure out the worth of the land as there is no property collateral as it is in home loan/ loan against property and also it is non-revenue generating asset which concerns the lender about your EMI repayment
Types Of Land Loan
There are basically two types of land loans, both being different with respect to features, benefits and terms and conditions.
1) Land Loan / Plot Loan
A loan is taken only to purchase a vacant residential piece of land/plot for the purpose of investment or which can later be used to construct a house in the future.
2) Land Loan + Construction Loan / Plot Loan + Construction Loan
Also called a composite loan, is the loan taken to purchase a vacant residential piece of land/plot and to construct a house on the property within the stipulated time period. The stipulated time period varies from lender to lender.
It is important to note that all land loans are sanctioned with a pre-condition that construction on the land/plot should commence within the stipulated period. But inland loan it is only a pre-condition to sanction a loan, you can avail a construction loan in future to construct a house on that land, while in the composite loan the cost for construction gets included in the value of the loan. But be careful, the noncompletion of the construction on the land within the stipulated time frame as that stated on the sanction letter by the lender, the lender may charge you with a penalty for non-commencement of construction. The penalty can be imposed in either of the ways:
1) You may be asked to pre-pay and close the loan.
2) Your lender may increase your existing land loan rate of interest, maybe up to 2% over and above your existing rate.
Eligibility Requirements For Land Loan
You are required to meet the eligibility criteria of the lender. The eligibility criteria for land loans are similar to home loan eligibility. The most common factors that the lender will look into are:
1) Nationality: You should be a resident of India.
2) Age: You should be between 21 to 70 years of age.
3) Income and Work Experience: you could be salaried or self-employed but must be with a regular flow of monthly income. Your job stability and work experience reflect your continuity in the income flow.
4) Credit Score: your average credit score required would be 750 and above.
Tax Benefits On Land Loan
There is no income tax benefit available for land loans. However, the tax deduction can be availed only for the loan amount taken against the construction and only after the construction of the property. Any interest paid before completion of construction cannot be claimed as pre-EMI interest like that in the home loan.
Irrespective of being another loan product people still consider the land loan to be the same as home loan though they significantly differ with each other. The following differentiation table highlights the difference between the two.
|SR. NO.||LAND LOAN||HOME LOAN|
|1||Purpose||A loan is taken to purchase a residential piece of land.||A loan is taken to purchase a residential house either under-construction or ready to move.|
|2||LTV-Loan To Value||Maximum 70% of land value. 50%-60% – If the property is situated in smaller cities or towns.||90 % – For property Value up-to 30lakhs.|
80% – For property Value up-to 75lakhs.
75% – For property Value above 75lakhs.
|3||Rate Of Interest||Higher than a home loan – 8.50% -11.50%||7.90% – 8.65%.|
|4||Loan Tenure||Up-to 15 years.||Up-to 30years.|
|5||Processing Charges||Up-to 2%-4% of the loan amount.||0.10% -0.30% of loan amount.|
|6||Pre-Payment Charges||Nil – for the individual borrowers.|
2% plus applicable taxes – for the non-individual borrowers.
|Nil – For floating Rate Of
2% – 4% – For fixed Rate Of Interest.
|7||Tax Benefits||No tax benefits. The tax deduction is available only for the loan amount taken against the construction and only after completion of construction activity.||Exemptions under section 80C for principal and section 24(b) for interest paid.|
Documents Required For Land Loan
- Application form duly signed by applicant and co-applicant.
- Recent passport size photograph of applicant and co-applicant.
- Pan card copy of applicant and co-applicant.
- Residence proof – electricity bill and Aadhar card copy of applicant and co-applicant.
- Income documents for salaried:
- Latest 5 months salary slips.
- Latest 6 months bank salary account statement.
- Latest 2 years form 16.
- Latest 1-year bonus copy.
- Income documents for self-employed:
- Latest 3 years ITR copy of the applicant along with the salary copy, balance sheet, profit & loss account and capital account- duly certified by CA along-with membership no. and USDIN no.
- Latest bank account statements of all accounts (current + savings).
- Latest 3 years from now. 26AS.
- The latest copy of GST returns – 3B form.
- Latest 1-year debtors and creditors statement duly certified by CA.
- Other documents:
- Business profile on company letterhead.
- Business proof- GST registration, Ghumastha or Aadhar Udyog.
- For Legal documents refer to point no.8 above inland purchasing.
To know more about a land loan, home loan in Mumbai, home loan transfer and home loan rates in Mumbai visit https://www.loanfasttrack.com/.
Loanfasttrack is the best online platform to choose among the best bank for a home loan to secure a low-cost housing loan in Mumbai, mortgage loan in Mumbai and instant personal loan in Mumbai.
Loanfasttrack is a specialized loan provider in Mumbai markets with its existence in the online market since 2015. It offers loan services in Mumbai – instant loan in Mumbai, loan against property in Mumbai, business loan in Mumbai, unsecured business loans, personal loan in Mumbai, home loan, home loan balance transfer, car loan, top-up loan & loan transfers.