Buying a new home requires a substantial investment. And, if you don’t have the necessary financial resources, applying for a home loan is the most feasible way to get the necessary funds. By getting a home loan, you get sufficient time to repay the amount in smaller instalments without feeling the burden.
However, getting a home loan requires you to meet certain prerequisites. You must provide the lender with specific documents to prove your eligibility and financial potential. Some of the vital documents that the lender may ask you to submit, include salary slip, bank account statement, KYC documents, and ITR (Income Tax Returns) for the last three years.
What is ITR?
ITR or Income Tax Returns is a form wherein, as a taxpayer, you must provide information about your annual income and the applicable taxes to the income tax department. Depending on your income source and the income amount, you must file the suitable ITR.
There are different types of ITR forms, namely ITR 1, ITR 2, ITR 3, ITR 4, ITR 5, ITR 6, and ITR 7. Each of these forms are meant for a specific group, and you must file the right form to avoid any taxation issues.
Is ITR necessary to get a home loan?
The simple answer is No. While providing income-tax-related details is a critical aspect of home loan documentation procedure, filing ITR is not a mandatory requirement for availing home loan. If your requirement is not too high, many private lenders and Non-banking Financial Companies or NBFC offer home loans without ITR.
Even though income is considered as one of the significant factors to determine your loan amount, it is not the only factor that lenders consider. They also consider other vital factors like age, occupation, credit history and credit score, age and location of the property, etc to determine the eligibility and the maximum amount they can lend.
Why is ITR important for getting a home loan?
Majority of the lenders consider ITR as one of the critical documents to assess your income level. Generally, the financial organisations ask the home loan applicants to submit the ITR filed for the last three years as part of the documentation procedure. And, if you are not able to submit the same, there is a risk that the lender will reject your application.
For lenders, the ITR is a vital document to assess your creditworthiness. If you have filed your income tax regularly, it would give them the impression that you are financially responsible, and you may repay the amount diligently without default.
Few lenders ask the home loan applicants to submit proof of their net worth along with the home loan application form. In such cases, a certified chartered accountant must prepare the statement for which ITR is mandatory. Without filing the ITR, you cannot get your net worth statement ready.
If you are a self-employed loan applicant and own a business, the lender will ask you to submit audited financial statements of your business for loan approval. And, to get your documents audited, you must have filed ITR on time and pay your taxes on or before the deadline.
Thus, ITR is an important aspect of the home loan application process but not necessary. Apart from filing the ITR, it is advisable to use the home Loan EMI calculator to know the exact EMI payable. This will help you plan your finances well and you can repay the amount without any hassles.