Is Filing an ITR Vital For Your Home Loan Eligibility

Filing an Income Tax Return (ITR) is a regulatory requirement. It is a form through which an assessee discloses their total income earned from various sources in a financial year and tax deposited with the Income Tax Department. Lending companies keep it as a mandatory requirement as part of their overall credit policy. The ITR helps the lending company gauge the financial health of the home loan borrower and is, therefore, the critical requirement for home loan eligibility which can be ascertained using the home loan eligibility calculator.

Home Loan Eligibility Documents

A home loan is a secured loan, and the property for which the loan is applied remains as collateral with the lending company until the loan is repaid in full. But despite this, banks and non-banking financial companies evaluate and assess the financial position and creditworthiness of the borrower before sanctioning a home loan. The home loan eligibility is checked through documents categorised as Identity proof, Address proof and Income proof.  Both salaried and non-salaried individuals have different eligibility criteria. Using the home loan eligibility calculator, one can check home loan eligibility before applying for a home loan.

Documents for Identity proof and Address proof documents are collectively called the KYC (Know Your Customer) documents. The following documents can be used for validation.

• Passport
• PAN Card
• Voter’s Identity Card
• Driving License
• Aadhaar Letter/Card
• NREGA Card

The income documents required to check home loan eligibility include:

• Three years Income Tax Return
• One-year bank account statement of both current and saving account
• Three years audited financial statement including Balance sheet, Profit and Loss account
• Three years salary slips
• Three years Form 16
• Three years (TDS) Form 26 AS  
• Net worth statements
• Ongoing loan schedules with corresponding bank statements

How Is ITR Helpful To Lending Companies?

An ITR is a crucial tool when you apply for a home loan. As Home Loan are high-value loans, the banks remain extremely cautious while advancing them. Thus, to minimise the odds of default and delayed repayment, the lending company relies heavily on the ITR documents of the applicant. No wonder ITR is required at the first stage of a home loan application to check home loan eligibility.

ITR is helpful to the lending company in the following ways.

To Understand Financial Inflows – The ITR attached with the home loan application is the proof of income that the applicant earned through the financial year. It puts forth the cumulative total of income earned from all sources and is thus a clear reflection of the income of the applicant. This information is crucial for the lending company as it cuts the risk of home loan defaults significantly.

To Understand Financial Standing – An ITR gives an insight into your financial standing. The home loan applicant is required to submit three years of ITR. Thus, it should reflect a stable income or an increasing trend. An ITR that shows a downtrend in income earned and taxes paid thereon is a negative parameter when checking home loan eligibility.

To Cross-Check the EMI Payout – While it is the role of the home loan borrower to ascertain the ideal EMI that they may pay back to repay the home loan using the home loan EMI calculator, the lending institution checks the feasibility of whether or not the calculated EMI amount can be paid without defaults. This is checked through ITR.

To Handle High-Value Home Loans – For high-value home loans, the borrower will be required to furnish a net-worth statement. This is submitted along with the Home Loan application. This statement is prepared by a Chartered Accountant on the basis of the ITR filed.

How Is ITR Helpful To Home Loan Applicants?

An ITR provides an insight into the home loan applicant’s financial standing and helps the lending institution make prudent and informed decisions before advancing a home loan. At the same time, it is vital for the home loan borrower to carefully examine the ITR to arrive at a correct assessment of the home loan quantum to avoid falling into a debt trap later.    

The ITR is helpful to the home loan applicant in the following ways:

Helps Calculate the Loan Value – The dream to buy a big house must be validated by the financial statements. An ITR does that for the borrower. The home loan quantum that a borrower can apply from a bank is dependent on their ITR statistics. Thus taking a careful and informed decision based on current financial standing will withhold the borrower from going overboard with the loan amount, which can have negative repercussions if not repaid timely.

Ascertain the EMI payout – The home loan amount has to be repaid in equated monthly instalments. As this outflow is bound to happen every month over the entire loan term (which runs into years), it must be ascertained carefully. Keeping the annual income reflected in the ITR as the benchmark, the borrower can use the home loan EMI calculator to verify the EMI amount.

To Avail Tax Benefits on Home Loan – Home loan borrowers can claim tax benefits on home loan repayment every year. They can claim deductions up to Rs. 1,50,000 under Section 80C for home loan principal amount repaid along with deductions up to Rs. 2,00,000 on interest repayment paid under Section 24 of the Income Tax Act. These reduce the annual tax liability of the borrower.

Is It Possible To Get Home Loan Without Filing ITR?

Submitting ITR documents with the home loan application form is vital for home loan eligibility.  While all authorised banks have this as a mandatory requirement, private money lenders and NBFC (Non-Banking Financial Company) may proceed with the same without the ITR. This is generally possible when the home loan requirement is small. But it is important to note that the private lenders approve these loans at an exorbitantly high rate of interest. For instance, the home loan interest rate from a private money lender can be almost double the ICICI home loan interest rate, making the home loans extremely expensive for the borrower.

Conclusion

Opting for a home loan from private money lenders can inflate your home loan cost manifold. So, if you aspire to own your dream home, diligently file your ITR return every year. Filing an ITR can help you enjoy dual benefits – one, at the time of applying for a home loan and second, while availing tax benefits on home loans.