For almost everyone, owning a dream home is the biggest milestone in life. If someone is not planning to purchase a pre-built house, acquiring a plot is the first step to achieving that goal. However, considering the exorbitant prices of land in India, many people opt to fund the purchase with a loan for land purchase. Since the loan interest rates are often lower than the land appreciation rates, buying it with a loan is a financially viable option. With several NBFCs offering easy plot loans in India, getting one has become a lucrative option for aspiring borrowers.
Before applying for a Plot Loan, here are a few tips to make an informed decision –
1. Know the Purpose of Land Purchase
Land type is the most important consideration while seeking a land purchase loan. Many use their land for residential, industrial, or agricultural use. Before applying for a loan, remember that loans for land purchase are available to buy plots for residential use only.
2. Give Attention to the Plot’s Location
Another factor to consider is the plot’s geographic location. Most NBFCs offer plot loans for land purchase within a particular city, corporation, or municipality only. Check the loan provider’s geographical limitations before applying for a loan.
3. Consider the Loan to Value Ratio
The LTV stands for Loan to Value Ratio, which indicates the percentage of the plot’s price the loan company funds with a loan. Most financial institutions fund 70-75% of the plot’s price. The borrowers must finance the remaining amount from their pocket as a down payment. Consider the loan provider’s LTV ratio before applying.
4. Maintain a Decent Credit Score
An individual’s credit score indicates their financial history. The numerical represents a person’s financial status by keeping track of all their credits, loans, and repayments. All loan companies consider applicants’ credit scores before lending. Maintain a credit score of 750 or above to get a loan for land purchase at a favourable Plot Loan interest rate.
5. Decide on the Loan Amount
Borrowing the maximum possible loan will keep the borrower’s savings intact and retain their emergency funds. However, the more they borrow, the bigger will be their loan burden and the harder will be the EMI repayments. Therefore, assess the LTV ratio and decide on the loan amount according to the borrower’s repayment capacity.
6. Plan Construction Commencement According to the Financial Institution’s Policy
Many finance companies add a clause to commence construction within a particular period of obtaining the Plot Loan. Enquire about this grace period and start construction on the plot accordingly. Failure to do that might attract higher interest rates or loan foreclosure before the term ends.
7. Be Ready for a Shorter Tenure
While Home Loan tenures stretch up to 30 years, loans for land purchase have loan terms between 10-15 years only. Therefore, be ready to pay a larger EMI amount to pay off the loan within a shorter period. Use an EMI calculator to estimate the monthly instalment beforehand and choose a tenure with budget-friendly EMIs.
8. Understand the DTI Ratio
DTI ratio is the ratio of debt compared to an individual’s monthly income. Ideally, it should be at most 30-40 %. Applying for more than the repayment capacity often leads to loan rejection and negative consequences. Therefore, selecting a loan EMI that corresponds with the borrower’s income is important.
9. Compare Interest Rates and Opt for the Lowest
Loan seekers with decent incomes and credit scores often get a reasonable Plot Loan interest rate with favourable terms and conditions. So, compare interest rates from different loan companies and bag the lowest one to benefit the most.
Those planning to construct their house from scratch the way they want will find Plot Loans lucrative financing options to fund the land purchase. However, use the smart tips mentioned here to get the best Plot Loan plan according to your financial requirement and repayment capacity.
