What Is A Loan For Land Purchase
Land Purchase Loan or Plot Purchase Loan is a unique financing option from Bajaj Finserv designed to assist you in purchasing a plot of land for residential construction. While owning a ready-made home does have its perks, customising your home to your needs can be infinitely more satisfying.
These land loans are tailor-made to help you buy the plot of your choice effortlessly. It is different from a home loan because home loans are offered to buy a ready-to-move-in property. But, a loan for land purchase covers every aspect of the purpose effectively. This loan also includes tax benefits. You can claim a deduction on the principal amount of up to Rs. 50,000 and up to Rs. 2 lakh on interest amount for a given financial year under the Income Tax Act. This loan to buy land can be your perfect option in two cases, which are illustrated below.
- If you plan to buy a resale plot
- If you plan to purchase a piece of land through direct allotment
The provision also extends the benefit of a top-up loan, thus allowing you to access additional funds, as needed. To borrow effectively, be sure to use the EMI calculator to know your monthly outflows beforehand and apply for the required amount accordingly.
What Does The Lender Need To See
The lender looks at different aspects of the land to determine if they want to loan you the money to purchase it. The main component is the access to the land is there direct access? If not, chances are no lender will provide funding. What is the zoning in the area and does it coincide with your plans? For example, if you plan to build a home, but the zoning is commercial, you will not be able to follow through with your plans. This is a detail the bank needs to know.
Strategies For Getting That Piece Of Heaven Here On Earth
Often the stars don’t line up, especially for those diamond-in-the-rough properties. Remember, to start the land purchase conversation with anyone you gotta have enough down payment cash to work with to be taken seriously. That’s called “skin in the game.”
- If you own a home already, there may be equity that we can access via a Home Equity Loan.
When you own your own home, generally you can borrow up to 80% of the appraised value. If your home is worth $400K and you owe $200K as an example, there may be $120K cash that we can extract to help with your down payment
- Consider personal lending not connected to the property for small loans.
Personal or unsecured lending is borrowing that is based on your credit score and employment, nothing else. Typically you can borrow amounts up to about $35K, but could be more depending on your job. Use the funds to help pay cash for a small land purchase for example.
- Consider vendor financing options besides or in conjunction with bank financing.
- Consider bringing in a manufactured home for a short-term and financing as a regular home.
- Lease the land with an Option to Purchase.
In this solution, the first step might be to simply “control the land” via a fixed term lease with the right to buy the land for a predetermined price for a set length of time . The seller may be happy to get a revenue stream from you. Meanwhile you save down payment as fast as you can to meet the bank’s down payment requirements, then exercise your right to purchase.
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How To Finance A Land Purchase
Modified date: May. 26, 2019
A lot has been written about financing a home purchase, but what if you want to buy a plot of land? Whether you plan to build a home on the land, use it for farming or another type of business, or hold onto it as an investment, the borrowing process is different than obtaining a regular mortgage.
If youre ready to dive in already and youre looking for the simplest way of financing your land purchase, check out our list of the best mortgages available.
How Do You Get A Land Loan Rates And Procedure Explained
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Purchasing vacant land can be an exciting prospect, but will often require a land loan. Land loans are a financing option used to buy a plot of land and, like a mortgage, can be obtained through a bank or a lender, who will evaluate your credit history and the land value to determine if youre an eligible buyer.
However, land loans are risky for lenders, since there is no home to act as collateral. Thats why its important to be prepared for a higher down payment and interest rate to secure a loan to buy land.
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Tips To Get A Loan To Buy Land
The lender does not easily finance plot purchase loans because of the high risk. So, to avoid loan rejection and increase your chances of loan approval, follow a few basic tips:
- Maintain a good credit score : Ensure that you have a good credit score of 650 and above to avail a plot loan. A good cibil score ensures the plot loan lender of your creditworthiness and ability to pay back the EMI. Availing loans at a bad cibil score may turn up the interest rates.
- Debt and Income Ratio : Your loan application will be approved if you maintain a good debt and income ratio. Lesser the ratio, the better are the chances of loan approval.
- Apply for a loan based on your repayment capacity : Before applying a loan for plot purchase, you need to evaluate how much loan amount you can afford based on your income and ability to repay. To check the loan affordability, you can make use of online calculators to know the eligibility.
Lenders Take A Bigger Risk On Land Than On Homes
When you go to a bank or other lender to borrow money for a land purchase, they have to evaluate not only your credit history but also how easy it will be for them to recoup their investment if you default on the loan. While its relatively easy to place a value on houses or condos, and to sell them after a foreclosure, the value of and demand for a plot of land can be harder to determine.
Understanding the lenders point of view will help you develop a stronger case for your loan request. It may also influence the plot of land you ultimately choose, and where you go for financing. Well discuss those options in separate sections below.
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Is Improved Land Better Than Raw Land
Improved land is land that has access to roads, electricity, and water.
Unimproved land doesnt have access to these services.
Sometimes you can install septic tanks or connect the land to public utilities.
However, if you know you want to do this, then youll want to check well before you purchase the land.
This can be a long and arduous process.
The last thing you want to find out is that this is impossible after youve already spent a good chunk of change.
Is one better than the other?
It depends on your perspective and your purpose.
Unimproved land can require a substantially higher down payment and construction will also take longer.
So, if youre not looking to invest significant money or time into this project, improved land is often the way to go.
Plot Loan Eligibility Criteria
You are required to meet the eligibility criteria mentioned by the lender to apply for a plot loan. Use the plot loan eligibility calculator online to know the eligibility.
- You should be a resident of India
- You should be aged between 18 and 70 years of age
- You should have a regular flow of income
- You can be either salaried or self-employed individual
- You should have a good cibil score of 650 and above
You are required to commence construction over the land or plot within the stipulated time to get a plot plus construction loan. The stipulated time frame can vary from lender to lender. For example, SBI specifies a construction period of 5 years from the date the loan has been sanctioned. However, ICICI Bank specifies a construction period of 2 years on plot plus construction loan.
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How Do I Find A Land Loan
Are you looking to get a land loan of your own?
Often, its easiest to do this from a specialize bank , community bank or credit union located near the land youre looking to buy and build on.
You may also want to contact a mortgage broker, who should know which banks are will to issue land loans.
Its worth noting before you start this process that land loans are more difficult to get than mortgages, so youll want to be prepared for this process.
Cast a wider net if necessary and dont get discouraged.
The type of lender youll need depends on what you plan to build on the land and what type of investment you make.
If youll working with a builder, they can often let you know where to look as well.
What Type Of Loan Is Needed To Purchase Land
Financing a land purchase requires a lender that understands how land sales work and is willing to take on the risk. Several loan options are available depending on your credit, income and assets. Other factors that affect obtaining a loan include the type of land you are buying and whether development plans already exist.
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S To Take Before Getting A Personal Loan To Buy Land
Unlike a mortgage, getting a personal loan to buy land will likely depend on the piece of property you intend to purchase. To convince a lender that you wont default on the loan, heres a few important steps to take before contacting potential lenders.
1. Know what land youd like to buy.Before you contact a lender, have a specific piece of land in mind. The lender may want to know what youll be doing with the land, and going to a lender without knowing the land itself can result in a rejection.
2. Know the zoning regulations, easements and improvements. City and municipal zoning laws play a big part in what you can and cant do with your land. For instance, you might not be able to legally start a farm if the area is zoned residential, or you may not be able to build the size or type of house youd like.
Similarly, easements or the right for you to use someone elses land and planned improvements for sewage, electricity and other utilities could prevent you from doing what youd like once you buy the property.
3. Contact the seller to make an offer.Once youve done your research and are ready to buy, contact the seller yourself or through a real estate agent. Prepare to ask for an exclusive buying period while you pursue financing otherwise, the owner could sell the land to someone else before youre approved for a loan.
What Type Of Land Should You Look For
Before you begin your search, think about what you want to use the land for. Most plots will fall into one of two categories: improved or raw land.
- Improved land has been added to or otherwise altered by humans. The number of improvements will vary but they could include anything from utilities to a driveway or sewage system.
- Raw or unimproved land is in its natural state, untouched by humans. This is the hardest kind of land purchase to finance because it will be harder for lenders to re-sell after a default.
However, depending on your purpose, raw land may be what you needif you want to start a farm, for example. You can make your application stronger with a story about what the land will be used for, including plans for any improvements you intend to make.
If youre looking for land to build a home on, improved land will be easier to work with. As an investment, location is probably more important than the state of the land. If you buy land in a hot or developing area, your chances of turning a profit on resale will be higher.
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How To Compare Vacant Land Loans
Consider all of the following features when comparing the advantages and disadvantages of a variety of vacant land loans:
- Rate. The interest rate is a hugely important feature on any home loan because it plays a big role in determining how much you will have to repay over the life of the loan. However, the interest rate doesn’t take any of a loan’s fees into account, so make sure to look at the comparison rate as well.
- Fees. Some loans may have hidden fees so always ensure you’re fully aware of any fees that apply to your vacant land loan.
- LVR . As vacant land is harder for a lender to sell in the event that a borrower defaults, many lenders take quite a conservative approach when offering land loans. As a result, you may find that some lenders offer a lower maximum LVR than you would expect, so compare this feature before you apply.
- Repayment options. Can you make additional repayments at any time? Can you pay the loan off early without incurring a fee? Can you choose a repayment schedule to suit your budget?
- Other features. It also makes good financial sense to look at the other features a lender may provide, including redraw facilities, offset accounts and loan split options.
Benefits Of Plot Loan
Taking a site loan is a secured source of financing, and if you take a land loan, you can avail the following benefits:
- The process of approval of land loans is easy and secure.
- It is an economically viable option to take a land loan.
- The repayment tenure of land loans is higher than personal loans.
- The ownership of property stays with you after taking a plot loan.
- You can avail tax benefits on a land loan if it is taken for construction.
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Everything You Need To Know About Land Loans
Buying a parcel of land, either as a long term investment or on which to build a new home, is not quite as simple as you might think. Unless you’re in a position to pay cash up front, you’ll need to borrow some money to finance the purchase. But borrowing money to purchase raw land is not quite that straight forward.
Land loans are unique financial products, and they are handled differently than mortgages and other secured loans. If you’ve never purchased land before, you may find the process a bit more challenging than you expected. But a short primer should help you understand how land loans work, and what your options are when looking for a lender.
How Easy Is It To Get A Personal Loan To Buy Land
This will depend on what you plan on doing with your land once youve purchased it.
- Its usually easier to borrow money for land that you plan to build a home or business on than it is to buy raw or undeveloped land that wont be improved on.
- How much land you want to buy will also affect whether you can easily get a loan.
- The type of development you want to do on the land will affect if you can get a loan, as well as any city or municipal regulations and zoning laws.
You can improve your chances of approval for a personal loan by going into the process with a solid plan and a specific piece of land in mind. If you plan to build a residence on the property, you will likely further increase your chances of lender approval, however they may require that you provide the land and home as collateral. Buying land for unknown future uses can result in a denial on your loan request.
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Cons Of Buying A Land And Home Package:
- Fees may have to be paid first: Depending on how the specific land and home package is set up, many companies require that fees are paid in full before work begins, which can create significant delays.
- Not always a money-saver: While the package is convenient, sometimes it is not significantly different in price.
- Heavy limitations: Land and Home packages are often geared toward a specific property and home size. Reneau and Walters both report the packages they are familiar with wont work for a property larger than 10 acres.I usually recommend separate loans for home and land deals, Walters says. I advise my clients to use the commercial banks for the home part of the loan and farm credit institutions for the land part.Once construction is over, the buyer can finance the home into a 30-year fixed rate mortgage through a mortgage company.
Commercial banks are usually more flexible during the construction of the home and have better lending tools for homes,” says Walters. “They also will allow the buyer to subcontract some of the services. Farm Credit institutions normally require lock and key contracts where one contractor will be over the entire process.”