For individuals paid in cash or outside the formal banking systems, getting a home loan isn’t impossible, but it does come with challenges. Here’s how lenders are adapting, and what options are available
When applying for a home loan, most banks will ask for standard income documentation, bank statements, salary slips, and income tax returns (ITRs). Typically, lenders ask for such documentation to assess the risk before extending any loan. Without such documentation, applicants often face trouble securing any loans.
Incidentally, India has a vast informal workforce, where many workers are paid in cash with no payslips, and no direct deposits. For such individuals, taking a loan is an almost impossible task. However, financial institutions are beginning to acknowledge the scale of the cash economy, and are slowly opening the door towards this segment of the population.
Income verification remains the single largest hurdle for such applications. Banks assess an applicant’s financial health based on consistent records. If the applicant's income isn’t visible in their bank account or tax filings, the loan application is always almost rejected because lenders cannot assess the risk factor and the applicant’s ability to repay the loan.
Applicants lacking formal documentation are typically asked for a higher upfront contribution, sometimes up to 40 per cent of the property’s value. Interest rates may also skew higher, and approval times stretch longer due to added checks.
Several banks and housing finance companies (HFCs) have now introduced measures for individuals outside the formal income net. Such applicants who do not have a proper pay slip can present other documents as proof of income when applying for home loans:
Here are some alternatives:
Bank Statements: Even if your income isn’t formally deposited, regular cash deposits or savings behaviour can help. Bank Lenders will look at applicant’s annual bank statement.
Employment Letters: An appointment letter or signed contract, especially on official letterhead, can further support your case.
Tax Returns: If you file your ITR, they still show overall financial activity, even without salaried status.
Credit Score: A strong CIBIL report showing timely repayments can balance the absence of income proof.
One viable solution is to apply with a co-applicant who has verifiable income. Banks often use the co-applicant’s financial profile to assess the loan. This method not only increases your eligibility, but also may allow you to secure a larger loan with better terms.
Another route is to reduce the loan amount requested. Banks are more likely to approve smaller loans in the absence of income proof, especially if you offer substantial equity in the form of a downpayment.
Applicants with long-standing relationships with their banks may benefit from internal assessments. Some private banks allow for internal verification processes that are more flexible for loyal customers.
Recognising the need for flexibility, some institutions have launched schemes aimed at borrowers without formal income documents.
PNB Housing Finance Unnati Scheme: This is designed for individuals employed in small businesses with mostly cash income. The scheme targets those with monthly earnings of at least Rs 15,000 and does not require income to be banked formally.
The loan amount is up to Rs 35 lakh, and funding is available up to 90 per cent of the property’s value. There is minimal paperwork requirement and the tenure is up to 30 years with the interest rates starting at 11.35 per cent.
Bandhan Bank: Suvidha Scheme: This scheme caters specifically to applicants without salary credit in their accounts. The income is instead assessed via personal interviews, cash flow patterns, and informal records.
The rate of interest starts at 9.16 per cent and funding is available up to 90 per cent. It is eligible for Pradhan Mantri Awas Yojana (PMAY)-linked subsidy. The tenure ranges from 1-30 years. There’s also a grace period for prepayment if done within the first five days of the month
The Suvidha scheme brings borrowers into the housing credit fold without demanding documents they can’t reasonably produce.