Engaging into real estate investments without proper financial planning can lead to risky borrowings and plunge you into a deep financial crisis. Unless you are in the fortunate position of being a cash buyer, you’re probably going to need some level of financing to get your desired property. And the bank loan provides the obvious solution.
Plot Loans Vs Home Loans: A Brief Overview
A plot loan, also known as land loan, is the money borrowed from a financial institution or bank to buy a piece of land or plot. On the other hand, home loans are used to buy a house or to finance construction.
Plot loans cover only residential (Non-Agricultural) plots, which are approved for residential use only by the local municipal authority. Hence, the plot must be within the city limits.
Should You Take A Bank Loan When Buying a Property?
In the following scenarios, you can strongly consider availing a loan.
1. When You Need Financial Assistance
This is an obvious reason you should take a loan. Understanding your current financial situation is key to making a risk-free and potentially lucrative real estate investment. You need to consider how comfortably you can afford not only the deposit but also the ongoing monthly repayments.
You must also set aside money for unforeseen expenses like sudden maintenance or repair costs. Also, consider your risk tolerance. If the prospect of a large debt makes you lose sleep, it might be advisable to save more before investing in property.
Certain banks also require you to commence the construction work within a stipulated time limit after taking the loan. Therefore, in case of residential plots, if you are not planning to kickstart the construction anytime soon you might have to skip the idea of taking a bank loan
2. When You Have a Good Credit Score
It’s also about your credit standing. If you have a good credit score, many lenders will be more than willing to issue out a mortgage loan at competitive interest rates.
3. When the Market Trends Are in Your Favour
To understand whether the market trends are in your favor, you need to first identify whether the current market is a buyer’s market or that of seller’s.
It is a buyer’s market when there are more properties and less demand. On the other hand, it is a seller’s market when there is more demand and considerably less supply.
In a buyer’s market, a bank loan could be an excellent idea. Reduced housing prices coupled with low interest rates make it an opportune time to take advantage of a bank loan. So, keep an eye on the interest rate announcements made by RBI and housing price trends in your desired area.
Conversely, during a seller’s market, prices generally spike. So you might have to be a little more careful when taking a large loan.
Things You Must Know Before Taking a Loan
If you have already made up your mind to take a plot loan, here are a few things you must know before taking the next steps.
- Loan-To-Value (LTV) Ratio
Typically, the LTV ratio for plot loans in India ranges between 70-85% of the plot cost. This implies that you need to make a down payment of 15-30%.
- Interest Rate
Interest rates on plot loans (9.5% to 15%) are usually higher than home loans, as the former are considered riskier.
- Loan Tenure
The tenure offered for plot loans (>15 years) is shorter than that for home loans (>30 years).
On the whole, getting a plot loan in India can be a bit more challenging than obtaining a home loan due to the stringent rules and verification processes.
If you are facing any challenges in availing a loan, we at Swapnabhumi Newtown, can help you with an easy way out. You can benefit from our exclusive no-cost EMI plans. All you need to do is just pay 30% of the total amount during the time of agreement. Contact us now.