Buying land at a price higher than government valuation: Can banks fund the gap and what loan options work best?

I’m a first-time buyer exploring a land purchase, but the seller’s price is about Rs 30–35 lakh higher than the government valuation. Since home or land loans are typically based on the lower of the bank/government valuation, I’m unsure how to bridge this funding gap. Can banks lend based on the seller’s price, or only the official valuation? Are there any legitimate ways to get a higher sanctioned amount? What type of loan would be most suitable — home loan, land loan, LAP, overdraft, or personal loan — and what are the trade-offs?

If banks don’t cover the shortfall, how do people usually manage it — through savings, family support, price negotiation, or short-term financing? Also, any practical advice on dealing with banks during such transactions — documents to prepare, negotiation tactics, or red flags to watch out for — would be really helpful. I’d prefer not to liquidate long-term investments if possible.

Advice by Dev Patel, Quantitative Research Analyst at 1 Finance

If negotiation does not work out, people usually use their savings or family support for finance. But you can explore options like a soft loan from your employer, bank overdraft or even loan against securities to finance your purchase, since you do not want to liquidate your long-term investments. Consult a qualified financial advisor before making any decision. They will assess your financial situation holistically and advise which option is the best if negotiation does work out.

A land/plot loan is suitable to finance this purchase. This would require a heavy down payment of more than 25% to 40% of the purchase price with no tax benefit. But if you are purchasing this land to construct a house, the best loan option would be a composite loan, which can finance your land purchase as well as the home construction. The down payment for a composite loan is around 25% only varying from lender to lender. The clause with a composite loan is that you need to begin with the home construction within a given time frame of 18-36 months (varies from lender to lender), otherwise the loan will be reclassified, or you will be penalised.

Please consult a qualified financial advisor before making any financial decision. A financial advisor will assess your affordability, choosing the best lender and the loan with loan terms that are suitable to you, and will recommend the best options to finance the down payment, along with a loan repayment strategy.