Plot Loan or Home Loan? What Changes for a Bangalore Buyer
Before signing for land in Bangalore, it helps to know how a plot loan departs from the home loan most people already understand. The two differ in how much money the bank puts in, how long the repayment runs, what the tax office gives back, and whether a house must be built. This article takes each in turn and ends with advice for buyers of BDA auction sites.
First, What the Bank Is Lending Against
With a home loan the security is a dwelling: a ready apartment, one still under construction, or a house on the borrower's own land. Banks can value such homes and resell them with ease. That comfort reaches the borrower as long terms and the lowest rates on offer.
A plot loan lends against bare land. Land earns no rent, takes longer to sell and is harder to value, so lenders tighten three terms: the amount funded, the years allowed and the rate charged. A third option, the composite loan, covers land and the building work under one sanction, and the bank treats it as a home loan carrying a build deadline.
Comparing the Two at a Glance
Each lender fixes its own numbers, and the final terms are whatever the sanction letter says. The table gives the usual pattern.
| Feature | Plot loan | Home loan |
|---|---|---|
| Pays for | Residential land only | A flat, a house, or construction |
| Portion of value lent | Roughly 70-80% of the land's worth | Between 75% and 90% |
| Repayment period | 10 to 15 years is typical | As long as 30 years |
| Pricing | Frequently a bit higher | The lender's lowest |
| Build by a date | Required by many banks | Does not arise |
| Tax relief | Only once a house is complete | Begins in the possession year, old regime |
What the Reserve Bank Allows
The RBI limits home loans by loan size. A bank may lend 90% of the value when the loan is at most Rs. 30 Lakhs. Between Rs. 30 Lakhs and Rs. 75 Lakhs the limit is 80%, and past Rs. 75 Lakhs it falls to 75%.
Plots are lent against more cautiously, on terms set by each bank, and the usual range is 70-80% of the land's worth. For valuation the bank takes the contract price or its own estimate, whichever is smaller. Stamp duty and registration charges are never in the loan, so buyers meet them from their own savings.
Numbers for a Rs. 60 Lakh Purchase
Here is an illustration with the same 8.5% annual rate on both loans, so the only moving parts are the loan share and the term. Actual plot loan rates can run higher.
- Plot costing Rs. 60 Lakhs: Rs. 42 Lakhs borrowed (70%) over 15 years means an EMI close to Rs. 41,359 and Rs. 18 Lakhs paid upfront
- Flat costing Rs. 60 Lakhs: Rs. 48 Lakhs borrowed (80%) over 20 years means an EMI close to Rs. 41,656 and Rs. 12 Lakhs paid upfront
The land buyer therefore puts in Rs. 6 Lakhs extra on day one, for an almost identical EMI. Both owe Karnataka stamp duty at 5.6% including cess and surcharge, which is Rs. 3.36 Lakhs here, and registration at 2%, which is Rs. 1.2 Lakhs. For a different price, run it through the EMI calculator.
Tax: A Home Is Needed First
Deductions on housing loan interest are designed for houses. A loan on empty land earns no deduction for interest or for principal repaid. This changes when a house is completed on the plot.
Once the house is ready and the owner has made it a home, interest can be deducted up to Rs. 2 Lakhs annually. Interest from the years before completion is spread over five equal parts under the same ceiling. Only the old tax regime allows this, while the default new regime gives nothing on a self-occupied home.
The Build-By Clause
Quite a few banks make a plot loan on the basis that a home will be built. The sanction letter then specifies a period for starting or finishing construction, often two to five years, and the number differs between lenders.
When the period lapses, a bank can move the loan to a higher rate because the borrower still holds bare land. Some ask for a sanctioned building plan or proof of progress along the way. Buyers who intend to wait many years should raise this point before applying.
Plots a Bank Will Fund
Only land that can legally take a house qualifies. Bangalore banks commonly ask for the following papers:
- Residential zoning, with a conversion order for layouts carved out of agricultural land
- Layout approval from the competent authority, the BDA or the BMRDA as the case may be
- Marketable title, shown by the deed chain and an encumbrance certificate
- Khata registered to the seller, plus current tax receipts
- A plot number and size that match the sanctioned layout
Farm plots, revenue sites and layouts without approval are usually turned down, and B-khata sites find few lenders. Approved layouts along growth corridors, for instance around Devanahalli, are the sort of land that gets financed.
Buying a Site at a BDA E-Auction
Because the Bangalore Development Authority itself issues the title, banks are generally open to lending on its sites. The problem is the clock rather than the paperwork.
At recent auctions, the highest bidder owed 25% of the bid in 72 hours, and the full balance a further 45 days from the allotment letter. Missing a deadline forfeits the earnest deposit. The latest notification should be checked for the exact terms.
Because a loan cannot be built from scratch in that time, the groundwork has to come first. These steps help:
- Obtain a pre-approved plot loan sanction ahead of the auction and note the figure
- Keep the initial 25% plus the rest of the buyer's own money ready in the account
- Confirm that the bank will release funds on the allotment letter, as the sale deed comes after full payment
- Bid no higher than the loan and the cash in the account can jointly cover
- Submit the allotment letter to the bank the day it is received
Which Loan Suits Which Plan
The timing of construction is the deciding factor. If the land will lie unbuilt for years, a plot loan makes sense despite its bigger down payment and shorter tenure. If building starts in the next two or three years, a composite loan brings regular home loan terms and a deduction afterwards.
A family that wants only a home to live in will usually find a home loan on a ready or under-construction home the cheapest of the three. Whatever the choice, the letter from the bank must carry four items: how much is lent, for how long, at what rate, and any date by which to build. Those decide the true price of credit for land.
