Tips to Get a Home Loan for Land Purchase

Purchasing a land is an investment that can hardly go wrong. The value of land is most certainly going to rise over the course of time. However, land is in demand amongst the youth of the nation and can be expensive to purchase. Moreover, availing a loan for land purchase is quite different from availing a home loan, and the process of approval is much more stringent than a regular home loan. Although more difficult to obtain, it isn’t impossible. Mentioned below are some tips that can help you obtain a loan to purchase land.

• Obtain a Construction Loan – A mortgage that allows you to purchase land and construct a house under a single loan is a construction loan. These kind of loans are relatively easier to obtain as it involves construction of property as well. This is also considered to be a wise investment as the value of the land will rise considerably once a building has been constructed on it.
• Submit Building Plans – Submitting your building plans to the bank upon requesting a loan to purchase land will increase the likelihood of you getting it sanctioned. However, it should be noted that the loan amount will be released as and when your construction steps are completed.
• Make a Larger Down Payment – Generally, banks and other financial institutions require you to pay 20 – 30% of the land value as down payment upon availing a loan. You can increase the likelihood of getting your loan sanctioned if you choose to pay a higher amount towards down payment. Sanctioning the loan will be less riskier for the lender if you have made a larger down payment, thereby increasing your chances drastically to obtain the loan.
• Have a Good Credit Score – Your credit score is one of the main factors that lenders take into consideration before approving your loan. Your credit score is essentially your past credit behaviour equated into a number between 300 and 900. The higher your credit score, the more likely it is for you to obtain a loan and vice versa. Also, getting a loan rejected will lower your credit score and make it difficult to avail a loan in future as well. Therefore, it is important to ensure that you have a good credit score before you apply for a loan.
• Understand your Debt and Income Ratio – This is basically the ratio of your debt when compared to your monthly income. Ideally, you should not be spending more that 40 – 50% of your monthly income on EMI that is payable towards your debt. Therefore, it is if utmost importance to opt for a loan amount that corresponds with your income. Not doing so may result in rejection of a loan.
• Opt for Equity Loans – A equity loan is a loan that can be availed by using his/her home as collateral. The value of the house will be used to obtain a loan in this case. This type of loan is much easier to obtain than a regular loan as it is less riskier for a banker to sanction a secured loan.