Banks have very specific eligibility criteria to grant a home loan. The criteria are further divided as per the profession on the loan applicant. Banks usually grant home loans which are 5 to 6 time of the applicant’s annual income. The more annual income you have, the higher amount you get as a home loan.
Income criteria:
The income of salaried home loan applicant is fixed and as they don’t have any other way to suppress their income, the bank considers the income shown in form No. 16 and ITR & accordingly an amount is decided. Whereas in terms of self employed home loan applicants, they can suppress their taxable income by using various means.
In case of salaried employees, their employer calculates and deducts the taxes applicable. Whereas self employed professionals have the liberty to decide how much income to declare and how much tax to pay. As self employed professionals often transact in cash which is not recorded in books, banks consider this fact. Thus they consider high portion of monthly income compared to what they see on paper.
Depreciation:
Many self employed professionals invest notable amount in fixed asset for their business. These assets include machinery, furniture etc. The income tax laws allow them to claim depreciation on the basis of cost of these assets, against their income. Depreciation does not involve any actual outflow of cash and the banks considers this amount of depreciation debited in the books of accounts as available for servicing the loans and thus add it to their taxable income.
Longer earning span:
One of the eligibility criteria for home loan includes applicant’s age and number of years remaining for their earning. The longer earning phase one has, the home loan eligibility of that person increases simultaneously. For salaried applicants, 58 or 60 is considered as a retirement age and thus considered that they won’t be earning after that age bar. Banks do not consider the fact that a salaried individual may earn even after his/her retirement. In case of self employed professionals, this age bar of earning is raised for up to 65 years and in some cases even more. Thus their eligibility to get a home loan increases.
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