Average house prices rose by 2.5% in 2021 and are expected to increase by a further 7% this year, driven by economic recovery and rising oil prices. Such soaring real estate prices have made it necessary for both salaried and self-employed people to apply for a home loan to afford a new house.
It is a common misconception that getting a home loan is a tiresome process for professionals and business owners. Many financial institutions have designed special home loan products to meet the lending requirements for the self-employed.
The following sections will cover the specifics of such loans and how to apply for them.
Home Loan Application Procedure for Self-employed Applicants
First, applicants will want to check various factors like home loan processing fees, interest rates, eligibility criteria, down payment, etc., before applying for a home. After this, they need to follow the given steps:
Step 1: Go to the official website of the financial institution and click on the option to apply for a home loan.
Step 2: Enter some basic personal details and verify with an OTP
Step 3: Input your personal, income, property and business details
Step 4: Pay the online fee to apply for the available offer
Step 5: Upload required documents to initiate verifications
What is a Home Loan for the Self-employed?
Today, more people are becoming entrepreneurs and setting up new e-commerce platforms, small businesses, stores and cottage industries. Professionals like doctors, engineers, lawyers, CAs and non-professionals like traders, agents, and contractors are self-employed individuals.
Financial institutions offer tailored home loans to suit the needs of individuals without a fixed source of income. Individuals with varying levels of income can get a home loan as easily as those with salaries as long they fulfil certain eligibility parameters.
As long as a borrower can prove his/her repayment capacity, financial stability, credit history with necessary documents, he/she can easily apply for a home loan. These tend to have higher home loan EMIs compared to loans given to salaried applicants. This is because lenders want to balance their credit risks as self-employed applicants’ income can go up and down depending on their businesses’ performance.
Financial institutions check various documents, such as P&L statements, balance sheets and tax returns to determine home loan eligibility. One can calculate home loan eligibility using an eligibility calculator. One can add a salaried co-applicant to improve his/her home loan eligibility.
Home Loan Eligibility Criteria for the Self-employed
The following are the key factors determining if a self-employed applicant will be able to get a home loan-
- Applicant’s age: Younger applicants carry less risk than older ones as they have more time to repay the home loan. So, individuals reaching retirement need to pay a larger down payment and cannot opt for a longer tenor.
- Educational background: Some financial institutions have requirements for minimum educational qualifications for self-employed people to apply for a home loan.
- Financial profile: A borrower’s loan repayment ability depends on his/her financial status. Before sanctioning a home loan, a lender will assess one’s existing liabilities, including credit card bills, unpaid personal loans, unpaid EMIs, etc.
- Enterprising ability: Lenders will look at a borrower’s ability to generate income to determine home loan eligibility. They will consider the profitability of one’s business venture and how many years it has been operating.
- The number of dependents: The amount of disposable income that a borrower has is one of the important factors that can affect home loan eligibility. A higher number of dependents usually mean higher monthly expenses, which reduce one’s home repayment capacity.
Documents Required for Home Loans for the Self-employed
The following documents are required for self-employed individuals when applying for a home loan. Some financial institutions may require one to furnish additional documents.
- Identity proof: A copy of one’s voter ID card, Aadhaar card, passport, driving license
- Proof of residential address: Voter ID card, Aadhaar card, passport, bank account statements, credit card statements, utility bills, etc.
- Address of business proof: Trade license certificate, partnership deed, Memorandum of Association, sales tax certificate, etc.
- Proof of income: Income Tax Returns for 2-3 years, PAN card, TAN card, current account statements, audited balance sheets and Profit and Loss statements.
Self-employed individuals can access specially-tailored pre-approved loan offers from financial institutions. To expedite the lending process, these offerings are given for various financial products, such as home loans, loans against property, personal loans, etc. Applicants only need to enter some basic details like their name and contact number to check their pre-approved offers. Additionally, you must also know how to apply for a home loan to complete all steps without any hassle. To sum up, self-employed applicants can easily access the home loan from various financial institutions these days. They will need to furnish proof of their business venture and loan repayment capacity to apply for a home loan.