Last Updated on April 27, 2023 by Tabraiz
A plot of land is the purest form of real estate investment. Other real estate investments, such as flats, houses, apartments, factories, etc., suffer depreciation.
But, the same does not apply to a plot of land since it remains the same year after year. This is the primary reason why, unlike properties, land values rarely decrease.
In fact, if you purchase a plot of land in a prime location, your returns on investment might be substantially higher than most other investment instruments.
If the amount in your hand falls short of the amount needed to purchase a plot of land, you may consider a loan for land purchase.
A loan for land purchase is a special type of home loan, and lenders offer such loans on convenient terms. However, since a land purchase loan is a long-term liability, evaluating all aspects before applying for a loan is wise.
This article elaborates on the top six tips to get the most from a loan for a land purchase.
6 Smart Tips to Get the Most From a Land Purchase Loan
The following is a laydown of the tips to follow:
Analyze the Property Location
If your primary purpose is to purchase a plot of land for investment, you must assess the location before applying for a loan for land purchase.
Check whether the property is in an area with all modern amenities nearby or not. Also, check how other people (locals) react to hearing about the area.
Also, read the news to find out whether the government or local authorities have any developmental plans for the area or not. And analyze how much the land’s value has appreciated in the past decade to predict its future.
Ensure that you conduct a proper survey to measure the actual plot area and whether the land is stable enough to ensure construction or not.
Check the Property Documents
Checking property documents is a must if you want to reduce your risks. Ensure to carefully inspect the Title Deed since it specifies whether the land is for commercial, residential, or agricultural use.
Moreover, ask the seller to provide you with an Encumbrance Certificate since it proves the land is freehold and has no pending litigation.
You may also ask for a Release Certificate and tax receipts before availing of a loan for land purchase.
A Decent Credit Score Can Work Wonders
Maintaining a decent credit score is paramount to getting the best home loan or land purchase loan interest rate. Usually, a score above 800 is considered the best.
However, you can still manage the approval of a loan for land purchase if your credit score is low. But, you may have to pay a higher interest rate on such a loan.
Repaying loan EMIs on time is the best way to increase the credit score and avail of low-interest loans, such as home loans or land purchase loans.
Keep Your Debt to Income Ratio Low
The Debt to Income ratio is a vital parameter that indicates a borrower’s income status vis-à-vis their credit portfolio. If your debt is less than 40% of your net monthly income, it indicates that you can manage your debt pretty well.
A DTI of less than 40% assures the lender that you can repay the loan EMI, prompting lenders to offer you more affordable interest rates on loans for land purchase.
Add a Co-Applicant
Adding a co-applicant to your loan for land purchase can increase your eligibility. Since loan eligibility determines the interest rate, you can reduce your net liability by adding another applicant to your loan application.
It would be best if you include someone earning more than you, as that would also increase your DTI ratio.
Read the Loan Agreement Carefully
After you submit the loan application form, the lender prepares a loan agreement and sends it to you for approval. Make sure you read the agreement fully before confirming with your lender.
Remember, once you give your consent, you have to honor your commitment to repay the loan for the land purchase.
A loan for land purchase enables you to get the funds required to buy a plot of land for house construction or investment. The six tips mentioned in this article can increase the chances of loan approval and lower the interest rate.