Most of us aspire to land a well-paying job that offers financial stability. As a stable monthly income has a number of benefits, working professionals try to make the most of such perks. One of the many benefits is that they can get home loans hassle-free. But what about the ones who are self-employed and might not have an income that is as stable as salaried employees?
Well, things are quite different for self-employed individuals when it comes to applying for a home loan. And this is why it becomes much more important to be aware of all the important factors one must consider while planning to get a home loan. Here is all you need that will ensure a smoother and hassle-free process:
Who Falls Under the Self-Employed Umbrella?
The self-employed umbrella is much more diverse than you might think. So, if you are self-employed, you might want to know exactly which category you fall under. Typically, there are two different categories when it comes to self-employed people - professionals and non-professionals.
Self-employed professionals are people who have been practising a profession by themselves. These people basically include lawyers, doctors, CAs, and CSs. Moreover, people who have an MBA or engineering degree and have set up their own businesses or who work independently can be termed self-employed professionals. However, people in the business of trading, retail, or other small-scale business owners would be termed as self-employed non-professionals.
Eligibility
A self-employed professional cannot provide the usual financial documents such as salary slips, P&L accounts, and proof of steady income on a monthly basis. And this is one of the reasons why self-employed people might feel less eligible for loans.
However, there is a different home loans eligibility criteria for people who work independently. There are several factors that financial institutions consider when it comes to approving home loans to self-employed professionals.
• Profile of the Applicant
The first parameter for a home loan for self-employed in India is the profile of the applicant, which can further be divided into three different factors:
Age – Most of the financial institutions would give an upper hand to self-employed home loan applicants with ages between 18 and 65 years.
Educational qualification – Several banks would want the applicant to be at least a graduate.
Dependents – More number of dependents translates to more financial burden on the applicant's shoulders, which would, in turn, lower their disposable income and might affect their repayment ability. This is the reason why a lender might consider this factor as well.
• Applicant's Financial Position
Another factor that lenders take into consideration is the applicant's financial position, as it can play a major role in the person's home loan repayment ability. A lender might assess the applicant's existing loans, credit card dues, and other factors to evaluate their financial position.
• Profitability Of the Business
The next factor that the lender will consider is the profitability of your business. If a self-employed person generates a handsome amount each month, it can affect their loan application positively. So, the lender would want to estimate your income or check the profitability of your business before sanctioning the loan.
• CIBIL Score
The lender will also check your CIBIL score, a prerequisite for certain institutions. While the score ranges between 300 to 700 points, a lower score would not mean you are not eligible for a home loan. However, a lower CIBIL score might only help you qualify for a relatively higher ROI in return.
• Debt Profile
Similar to the home loan eligibility criteria for salaried employees, self-employed individuals also have to inform the lender if there is an ongoing loan under their name. Since an existing loan can affect the applicant's repayment ability, it might have an impact on the approval of the home loan. However, it is still important to be as transparent as possible in your loan application.
Documents Required
Compared to a salaried employee, an entrepreneur would have to provide more documents for a home loan to prove their financial stability and repayment ability. Here is a list of the required documents:
- Address/residence proof (Passport, Voter Card, Aadhaar Card, Bank Account Statements, Property Tax Receipts, Utility Bills)
- Proof of earnings (PAN Card, TAN Card, IT Returns, Current Account Statements)
- Certified financials (Audited Profit and Loss Account and Balance Sheet)
- Last six months or last year's bank statement, depending on the requirement.
- Education qualification certificates and degrees
- Co- applicant's income details, if any
- Professional practice certificate
- Property-related documents (Copy of the Property Purchase agreement)
Conclusion
Buying a new home for yourself is a huge milestone, and we hope this information will help you get a home loan without any hassle and get you one step closer to your dream home.
