The Next 6 Things You Should Do For Residential Plot Loan Approval
Investing in plots has been practiced in India for a long time as it is considered a risk-free and conventional form of investment. The plots thus acquired can be used for future resale or the construction of a home. A residential plot loan can come in handy for the purchase of land to overcome gaps in finances. A plot loan should not be confused with a home loan as both are different entities. While the former funds the need of buying vacant land, the latter addresses the financial needs of those who are looking to purchase a constructed house or a flat.
Do home loans and plot loans have the same approval process?
Home loans are relatively easier to acquire as the risk factor is lower as per the financial institutions. In the case of plot loans, the lender needs to have an assurance about the return of investment. Also, for lenders, an undeveloped property poses a higher risk than an already developed one. The financial institution needs to have an assurance from the borrower on the repayment process.
Six things to consider before availing a plot loan:
a) Type of plot:
This is the most crucial factor before availing a plot loan. While there are various plot types including industrial plots or agricultural plots, you might want to be careful about choosing the residential plot type as per your requirement of construction of a home at the later phase of your life.
b) Location of the plot:
The area of the plot is of prime importance to the lenders as in most cases, they will come to know about the geographic location specified by you and will decide on the approval/rejection. Note that the banks/NBFCs would not want to approve plots that are located at a risky location, i.e. agricultural/forest lands. Hence you need to be vigilant about choosing the right type of plot for yourself. The good news is most of the plot purchases nowadays are aided by banks, and hence one doesn’t need to worry about finding finances. However, you have the right to find the right financial partner based on your requirements and convenience.
It is always better to let your financial partner know about the purpose of buying a plot. The goal can be constructing an establishment or residence for resale in the future. However, a plot loan for the construction of a house attracts a lower rate of interest as the banking partner feels that the risk is lower.
Generally, home loans can have a tenure up to 30 years, but plot loans have a tenure between 15-20 years with land loan interest rates ranging more than 13%, and you can choose the tenure based on your requirement.
The banks/NBFCs consider several factors like the type of plot, purpose, construction timeline, existing loans, credit history to check the risk of approving the loans to the borrower. If the necessary documentation is available, the approval process gets quicker.
Note that several lenders provide time for the commencement of construction of homes on the residential plots and can levy a penalty if the same is not done on time. Hence you need to enquire about such details before applying for a loan. Experts feel that this is not an uncommon practice as the purpose of a residential plot is to have a home built accordingly.
So there you have it. Consider the points mentioned here when you are looking for an approval on your application for a loan for a residential plot.