The Role of ITR in Securing Home Loans

Substantial growth is witnessed by the Indian housing market in recent years, fueled by factors like urbanization, increased disposable income, and the government’s emphasis on affordable housing. The home loan lies at the heart of this growth because this is a financial instrument that allows individuals to realize their dream of owning a home.

Let’s face it. Buying a dream home is no easy feat. It demands a substantial financial investment. If you don’t have the funds available, applying for a home loan is your best option. A home loan will provide you with the funds required to purchase your dream home, and the loan can be repaid in 10 to 15 years depending on your chosen or agreed upon  tenure.

However, securing a home loan involves ticking several boxes. Two of the most important boxes to be ticked off is having a good credit score and diligently filing your ITR. In this blog, we will explore ITR’s role in securing home loans.

What is ITR?

ITR ( Income Tax Return ) is a mandatory form to be filled and submitted to the Income Tax Department of India. It consists of information regarding a person’s income and taxes to be paid on it during the year. All the information filed in ITR must pertain to a particular financial year, i.e., starting on 1st April and ending on 31st March of the next year.

7 types of ITR forms are described by the Income Tax Department of India, and applicability of the form depends on the amount and nature of income and the type of taxpayer.

What is the importance of ITR in home loans?

An ITR is a comprehensive document detailing a person’s income, deductions, and tax liabilities for a financial year. For lenders, this document is a critical tool for analyzing the creditworthiness and repayment capacity of the borrower. As for the borrower, regular ITR filing gives them an understanding of their financial standing and saves them from wondering what is the ideal property budget that will fit your financial goals. 

ITR is essential for securing a home loan because:

• Lenders assess this document to verify the borrower’s income and ensure they would pay EMIs in a timely manner. Most lenders require ITR for the last three years to process the loan application.
• By scrutinizing ITR, lenders determine the borrower’s credibility and repayment capacity. If you have defaulted inITR filing, lenders may assume you would default in EMI payments as well.
• Lenders decide the amount of home loan they will disburse after reviewing the borrower’s ITR.
• A strong financial background, evidenced by ITRs, makes borrowers eligible for competitive interest rates.
• The home loan application process can be sped up if you have your ITRs ready because lenders have all the necessary information they need to process your application.

What is the ITR verification process followed by home loan lenders?

Stringent processes are in place to verify the authenticity of ITRs. The processes followed by home loan lenders include:

• Bank statement analysis – Bank statements are scrutinized by lenders to make sure it is consistent with the income declared in the ITR.
• Form 16 verification – Issued by the employer, this document corroborates the income details you have mentioned in the ITR.
• Income stability – Home loan lenders prefer borrowers with a stable income history. Hence, last three year ITRs are usually asked to be submitted along with the loan application.
• Tax payment verification – It is mandatory to provide proof of tax payment. Any delays or discrepancies can raise red flags.

Is it possible to secure a home loan without ITR?

While ITR is a cornerstone for securing a home loan, there are circumstances where lenders may consider alternative documents. However, please note that the terms of the loan and chances of approval might be less favorable than those of borrowers with a strong ITR profile.

The factors affecting loan approval without ITR are:

• Income level – You might be able to secure a home loan without an ITR if your income falls below the taxable limit. There are lenders offering products specifically designed for this segment.
• Property value – If the property value is high, it may offset the absence of an ITR.
• Co-applicant – If your co-applicant has a strong ITR profile, your loan approval chances might improve.
• Down payment – Your loan eligibility may improve if you make a substantial down payment.
• Credit score – The lender’s decision might be influenced in your favor if you have a good credit score.

However, securing a home loan without ITRs might mean higher interest rates because the lender considers you a risk. Also, the loan amount might be lower, and the terms might be stricter, such as higher EMIs or shorter repayment periods.

Final words

An ITR is an essential document for your home loan application. It serves as a comprehensive financial profile, allowing lenders to make informed decisions on the loan tenure, amount, and interest rate. Borrowers maintaining an up-to-date and accurate ITR profile can enhance their chances of loan approval and faster processing. Also, you are in a better position to negotiate the terms of your home loan and purchase your dream home.

Do you diligently file your ITR? If you dream of becoming a homeowner, start filing your ITR and try not to default.