Sites are bought by people who want to build their own independent house or by investors as an investment because of the escalating property prices. Loans for purchase of sites are available to those who want to purchase a plot of land to construct a residential property. Quite a few (not all) banks and housing finance companies offer this loan. However, they usually insist that the land is purchased from a recognised authority such as the Bangalore Development Authority, from a society, or from a recognised developer. Some banks also give loans for purchase of land from individuals, but subject to some conditions.
The main concerns of banks while financing purchase of plots include difficulty in documentation, security of the property and delay in commencement of construction. The prerequisite is that the land should be developed and clearly demarcated. Loans are not available for purchase of agricultural land. The plot should be meant for residential purposes. Some banks put a condition that the commencement of construction should take place within a specified period - usually six months to one year. In case a site is being purchased from a government agency, the legal hitches are a minimum, and so are the formalities. This is not the case if one is purchasing the site from an existing owner.
Refinance of land purchased is normally not permitted by banks. Also, most banks finance the purchase of a plot of land only if it is in a location within the limits of the municipal corporation concerned.
Most banks specify a limit on the loan-to-value ratio. It could vary from 70 to 85 percent of the registered value. As such, only 70 to 85 percent of the registered value is financed by banks. Further, the loan amount has no relation to the market value of the property. Any premium paid by the purchaser has to be from his own resources.
The rate of interest on a land loan is usually lower than the rate of interest charged on regular home loans. Most banks have a minimum and maximum loan amount for the purchase of a plot. The security for the loan is an equitable mortgage on the plot. It is done by taking deposit of the original title deeds of the plot. The bank may also insist on additional security depending on the type of land.
The disbursement of the loan amount is always in favour of the seller of the plot unless the purchaser has already paid the amount. Normally, banks do not offer loans for plots purchased over a year ago.
In addition to the general documentation, these additional documents are required to avail land loans:
Original documents regarding ownership of land
Layout drawing as approved by the city's development or planning authority. It should show where the plot of land is located, and its surrounding area
Tax receipts for taxes paid by the owner of the land No encumbrance certificate certifying that the land is not already mortgaged
Revenue receipts confirming payment of land dues to the government
No objection certificate from the society for sale and transfer of land (in case the land is owned by a society)
The charges applicable to general housing loans like processing fees etc are applicable to land loans as well. Also, age norms and calculations for computing loan amount eligibility are the same as those for a general home loan. Most banks also have a minimum income limit. The repayment of the loan is through equated monthly installments (EMIs). The mode of repayment of these EMIs could be by way of postdated cheques, standing instructions, or deductions from salary.
It needs to be noted that no tax benefits are available on land loans. Interest paid on the money borrowed for the purchase of land is not eligible for income tax deductions. However, once a borrower converts the land loan into a housing loan to finance the construction of a residential property, he can avail of the available tax benefits.
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