Points to Check before Applying for a Loan to Buy Land

Buying a plot is a great investment idea. A plot can also be bought for personal construction purposes. However most people take a loan to buy land from the bank or non banking financial companies.

Before you apply for a loan for plot purchase here are a few points to keep in mind.

  • The Type of Land to Buy: The land which is suitable for residential and commercial purposes are only funded by the money lenders. Agricultural land which is a part of the green and orange belt is not commercially funded by any money lender.
  • Kind of Construction Plot: The plot of land for construction purposes can be independent or gated one. The plots that are within a gated community have more security from illegal encroachment and also have some basic development work already done like well paved roads, proper embarking, numbering of independent plots, proper sewage system and water pipes, filling and levelling of the terrain.
  • There is Geographic Limitation: The money lending companies have a certain location limit till which they offer loan for buying plots. This is important for their collection team that travels to the outskirts of the city where most of the land is available. Hence, the outskirts are yet not urbanized, there is a high risk of illegal activities by the anti-socials.
  • Loan to Value Ratio: There is a loan to value ratio for the funding of a land. The loan to value ratio of independent plots are up to 70% of the agreement value. While for the gated community lands the loan to value ratio is increased by 5%. Thus 75% is offered against the agreement value for the entire property.
  • Loan Tenure: The loan tenure for land purchase is limited up to 15 to 20 years. But some lenders may also offer a tenure of 20 years. This increase in loan tenure can be achieved by borrowers with better credit score and repayment history.
  • Rate of Interest: The land loan interest rate is the same as it is for home purchase. But in case of floating interest rates there can be a change depending upon the market performance and market value of the plot. You can use a loan EMI calculator to estimate your monthly repayments.
  • Timeline for Construction: There are loan packages that include both plot and construction expenditures and they come within an agreed timeline. If you have no plans to construct a home on the plot anytime soon, it is better that you choose a loan which is only for the plot. Otherwise if you fail to construct the house within the specified timeline, the moneylender can increase your rate of interest as a penalty.
  • Purchase Purpose: During verification of your documents the moneylender can ask you the purpose of the plot. If you have a commercial or personal purpose for investing in the plot then they can have confidence in your repayment capacity. But if you are planning to keep the plot as an asset or investment then there are chances that you may repeatedly keep failing to pay your EMI on time.
  • High Risk Investment: Offering loan for land purchase is a risky investment for most of the money lending companies. The risk with under construction plots are of encroachment and litigation. A piece of land that is not purchased for construction purposes and merely for investment also means that the borrower may not be serious in paying back the loan punctually.

However if you have a good credit score and repayment history, acquiring a loan for purchasing a land might not be much difficult for you.

Author Bio –

Gaurav is a blogger and he passionate about writing on different topics like Insurance, Tech, Automotive, Finance and many others. He has been creating SEO friendly content for more than 5 years. For more info you can visit his blog at Wisdom Ancient.

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