Many people want to construct the house of their dreams but do not have ample finances. When individuals do not have finances, they rely on house loans from respective lenders. A plot loan is offered to individuals to purchase a piece of land. However, the lender assumes that the loan applicant will construct a house on the Plot. People might fail to build a home on a plot bought via a loan. Read on to know what happens if someone fails to construct a house on a piece of land purchased via a loan.
Understanding the concept of a plot loan
To purchase a piece of land, people apply for residential loans. Residential loans are distributed under one condition. The condition is that the borrower should start construction on the Plot soon. Usually, borrowers should begin construction within two to three years of acquiring a Plot loan. Acquiring a piece of land and skipping the construction process is not justified. The lender communicates this criterion before offering a residential loan. Let us know understand how plot loans work.
What happens if construction does not begin?
A residential loan is approved assuming the borrower will begin construction in the next 2-3 years. After the grace period, the borrower is supposed to submit the proof of construction to the lender. If the required proof/documents aren’t deposited, the residential loan will be converted into a regular loan. After not receiving the completion certificate timely, lenders can take such actions. As a result, the interest rates on residence loans are generally less than other loan types. However, once a residence loan is converted into a standard loan, the interest rates are increased.
The new interest loans can be retrospective and applied from the start of the residence loan. The plot loan rate of interest will change overnight. The lender has the legal right to change the interest rates upon non-submission of the construction certificate. When the residence loan is approved, the lender and the borrower sign an agreement. The agreement for a residence loan includes the clauses after not beginning construction.
The outstanding loan amount will increase significantly after converting the residence loan into a regular one. Usually, the plot loan rate of interest lingers around 7.75%. However, after failing to start construction on the Plot, the interest rate can go up to 9% – 10%.
Is there a single loan to purchase a plot and finance home construction?
Some lenders offer a single loan for the purchase of a plot and construction. The loan amount is divided into two parts, which are the purchase of the Plot, and construction. For example, 40% of the loan amount is for the purchase of the Plot, and 60% is for the construction. Some lenders also offer individual loans for a plot and construction. The policy for residence loans can change from one lender to another.
In some cases, the lender’s representatives might not provide complete information regarding a residence loan. They might do so to lure the borrower and sign the agreement. Individuals should read the terms and conditions mentioned in the contract before acquiring a residence loan.
Characteristics of plot loans in India
Some important points regarding residence loans in India are as follows:
- The age bracket for a residence loan in India is between 18 and 70 years.
- Banks judge the CIBIL score of the applicant before offering a plot loan. The CIBIL score should be 700 or above to get better interest rates on residence loans.
- Up to 60% or 70% of the cost of the Plot is provided as a loan by the lender.
- The maximum repayment tenure for residence loans lingers at around 15 years.
.
Individuals should opt for plot loans only when they are interested in construction. Apply for a loan and buy a piece of land right away!
