Know More About The Difference Between Home Loan And Land Loan
Home and land loans are two financial instruments that enable you to purchase a home. But there is a difference between them which you should keep in mind. You should know these differences when you are a potential borrower. Knowing differences will help you make a well-informed decision.
Before making a decision, it is vital to understand the potential difference between home and land loans and the processing fees associated with both loans.
Home loans are used for buying an under-construction or existing property, while land loans are used to purchase a land plot for building a house or investment purposes. So, read the blog to learn more about the potential differences between home and land loans.
Home loans and land loans
- A Home Loan is a loan used to buy an already-built home. The loan amount is based on the house’s appraisal value, and the interest rate is based on the customer’s credit score and current market conditions. The loan amount is disbursed to the customer in one lump sum, and the borrower can repay the loan in monthly instalments.
- A Land Loan is a loan used to purchase land for building a home. The loan amount is based on the value of the land, and the interest rate is also based on the customer’s credit score and current market conditions.
Difference between Home Loan and Land Loan
There are some key differences between home loans and land mortgage loan that you should be aware of. Here are some vital differences.
- Purpose:
A Home Loan is taken to buy a house, while a Land Loan is taken to purchase a plot of land.
- Collateral:
A home Loan is secured by collateral such as the house, whereas Land Loan is secured by collateral such as the plot of purchased land.
- Interest Rates:
Home Loan interest rates are usually lower than Land Loan interest rates.
- Loan Amount:
In more cases, Home Loan amounts are usually higher than Land Loan amounts.
- Documentation:
Land Loan documents are usually more stringent than Home Loan documents.
- Loan Term:
A Home Loan generally has longer loan terms than Land Loan. The loan term is the amount of time a borrower agrees to repay a loan. The longer the loan term, the more time the borrower has to repay the loan. The loan term for Land Loan is 15 years, while for Home Loan, it can be up to 30 years. The longer the loan term, the higher the interest rate.
- Closing Costs:
Generally, closing costs for Home Loans are higher than for Land Loans.
- Hard to get
Getting a loan depends on the individual’s credit history, income, and savings. Generally, a home loan is more difficult to obtain than a land loan. Because a home loan requires the borrower to put down a larger down payment and meet more stringent income requirements. On the other hand, land loans require a minimum down payment compared to home loans.
- Processing fees:
- The processing fees associated with a Home Loan are typically higher than a Land Loan due to the complexity of the loan.
- And the processing fees associated with a Land Loan are usually lower than a Home Loan because the loan is generally more straightforward and there is less paperwork.
- Mortgage value:
- A home loan is typically a secured loan, meaning the lender will use the home as collateral for the loan. And the repayment period is up to 30 years. And these home loan repayment periods will change depending on the different banks.
- A land loan is also a secured loan, meaning the lender uses the land as collateral for the loan. Land loans usually have higher interest rates and may require a larger down payment than home loans and a repayment period of 5 to 15 years.
Conclusion
Home and land loans are two distinct types of loans that serve different purposes. Understanding the differences between the two is essential to make an informed decision when taking out a loan. Home loans are typically used to purchase a home, while land loans are used to buy land for development. Ultimately, your loan type will depend on your individual needs and financial situation. Hope this blog will help you distinguish between home and land loans.
Read a similar blog: How to Calculate Eligibility for Home Loan?
