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Special Home Loans Available for Specific Purposes

Many of us are familiar with the basic home loans that are readily available in the market. However, there are a few other types of home loans available from lenders, for specific purposes related to your housing needs. Here we share some details of these loans, so you can make a smart decision and take the right kind of loan for the right kind of activity.

1. Home improvement loans: A home improvement loan is taken when you conduct any repair work or renovate your existing property. Home improvement does not bring about any change to the existing area of the house, but is only a modification to the existing property.
   
   

   Purpose: Home improvement is for the beautification and improvement of the house. If you want to change the way your house looks then you can opt for a home improvement loan. Any improvement to the house can include the following things:

   • Tiling and flooring
   • Woodwork or replacement of old furniture with new furniture
   • Re-painting your house
   • Structural repairs

   Interest rates: Typically lenders charge an interest rate in the range of 8.5% to 12%.

2. Home extension loans: A home extension loan is taken when you make any alteration to the built up area of your property. You must consult an engineer or architect to clarify the type of activity you are getting done in order to understand which category your loan might fall into – home improvement or home extension.

   Purpose: You can opt for a home extension loan when you want to increase the space in your house. This activity results in an increase in the square footage of your home. Following activities can form part of home extension:

   • Construction of an additional room or floor with prior approval from the local authority
   • Extension of any part of the house like the kitchen or balcony
   • Construction of a garage in the vicinity
   
   
   

   Interest rates: For home extension too, the interest rate is between 8.5% and 12%.

   There's a thin line between home improvement and home extension loans. Let's see what features are common and different for both these types of loans:

   Features	Home Extension Loan	Home Improvement Loan
   Documents	Title deed of the property, latest tax receipts of the property, sanctioned plan, cost estimate from the architects, and license for the extension	Same
   Loan amount	The lender will finance a maximum of up to 85% of the cost estimate.	Same
   Tenure	Up to 15 years	Same
   Tax benefit	You are entitled to an annual tax deduction of up to Rs. 30,000 (interest component)	You are not entitled to any tax benefits.
   Reason	This type of loan is taken when you increase the area of your existing property.	Home improvement does not result in any increase in the area of the property, but brings about a change to the existing property.

3. Land purchase loans: As the name suggests, these types of loans are available for purchase of land, either for constructing a house on it or investment purpose. Typically, you will get a loan of up to 85% of the cost of your land. Repayment period for land purchase loans is about 15 years.
   
   

   Interest rates: The interest rate on land purchase loans varies from 9.5% to 12%.

   Tax benefits: You get no tax breaks if you buy a plot of land and don't construct a house on it. You can claim up to Rs. 1 lakh exemption for the principal repayment under Section 80C, and Rs. 1.50 lakhs for the interest amount under Section 24. However, the following conditions need to be fulfilled first:

   • The house should be constructed within six months of buying the plot of land for which you took a home loan.
   • The tax benefits will be applicable only in the year in which the construction of the property is completed.
   • The construction needs to be completed within three years from the end of the financial year in which the first disbursement of the plot loan is taken.

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