Why do self employed individuals looking to buy homes typically ignore their dreams? It’s often because they consider getting home loan as an overwhelming and challenging process. However obtaining a home loan can be beneficial. For employees earning a fixed monthly salary, the process is simpler, but for professionals who are self-employed, it poses distinct challenges which come with an erratic income flow, and considerable amounts of paperwork. At Today Finserv Consulting India, we assist self employed individuals with seeking timely approval for home loans.
What Makes Self-Employed Borrowers Stand Out?
Compared to salaried employees, self-employed borrowers tend to have more complex applications due to changes in income, credit, and self-discipline over time. In the eyes of the lender, this can translate into higher risk, which leads to:
- discounts on loans
- better interest rates
- Waived servicecharges
- increased promotional benefits
- Self-employed borrowers are still able to maintain home loans and competitive revolving interest rates if they plan ahead and are well-informed about the process.
Different Types of Self-Employment that Can be Found in the Market
- Business proprietors and partners
- Freelance workers and consultants
- Doctors, architects, lawyers, and chartered accountants
- Small-scale entrepreneurs
- Traders and commission agents
- All fields listed above might come across unique requirements for submission however they’re all bound by the same set of general rules.
Self Employed Eligibility Criteria for Home Loans
Steady Business Operations
Most lenders require at least two to three years of uninterrupted business activity. Having a longer history tends to be correlational with approval rates.
Proof of Income
Self-employed individuals differ from employees who provide their payslips as proof of income. As proof of self-employment, they are required to provide:
- ITR for the last 2-3 years
- Audited or certified financial account/Profit & Loss statement along with a Balance Sheet by a Chartered Accountant (CA)
- Sustained business activity in bank accounts with consistent inflow and outflow transactions.
Credit Score
Provides evidence of repayment discipline. A borrower must maintain a good credit score, typically 750 and above.
Age and Tenure
Applicants should be 21 years of age and should not be above 65 years when the loan tenure ends. Most lenders offer from 15 to 30 years as the maximum tenure of the loan.
Debt-to-Income Ratio
This is the relationship between your existing debts and your income. Having lower outstanding debts improves eligibility.
Documents Needed for Self Employed Home Loan
Following the prescribed checklist will greatly enhance the efficiency of the loan application process. Below is a sample checklist:
Identity Proof: Aadhaar card, PAN card, passport, voter ID
Address Proof: Utility bills, rent agreement, indexed passport
Financial Proof
- Income Tax Returns for the past 2-3 years (Should be filed in a timely manner)
- Provisional and verified documents of finance (Balance Sheet & Pacified Loss Account)
- Certificate from Chartered Accountant’s Office (if required)
- Bank Statements: 6-12 months for both personal and business accounts
- Business Registration Certificate, GST Registration, Trade License (if appropriate)
- Property Documents: Agreement to sell, title deed, No-objection certificate from the builder
- Passports and any other basic KYC documents
How To Make it Easier to Get a Home Loan
Maintain Proper Hard & Soft Copy Financial Records as well as Digital Formats
Paying tax and having a tax-refund document is essential, but including taxable income is not mandatory. Alongside that, there must not be inconsistency between claimed income and bank statements.
Develop a Good Credit History
Defaulting payments on loans, credit cards or bills is frowned upon. Improved CIBIL score results in greater chances of low interest rate, thereby increasing loan approval ratio.
Keeping Business and Personal Accounts Distinct
The use of a sole bank account blurs the distinction of business and personal funds, which can be detrimental when it comes to assessing loan eligibility. Distinct bank accounts elevate validity.
Lower Existing Liabilities
The improvement in the Debt-to-Income ratio resulting from the lowering of existing EMIs will qualify you for a greater loan amount.
Add a Co-Applicant
A spouse or partner with a stable job can act as a co-applicant and improves your eligibility and loan conditions.
Advantages of Taking a Home Loan When Self-Employed
There are benefits that stand out with considerable importance despite the difficulty:
- Tax Benefits: Allowable tax deductions on the repayment of the principal amount (under Section 80C) as well as the paid interest (under Section 24b).
- Build Credit History: Creditworthiness is established by repaying EMTs on time.
- Longer Tenure: The repayment period for home loans is usually longer (up to 30 years), thereby decreasing the burden of EMIs.
- Leverage Funds: Rather than using liquid savings, home loans allow other investments to be made.
Common Challenges Faced by Self-Employed Borrowers
The inconsistent income stream can be difficult to prove when applying for self-employment loans and during off seasons.
Documentation: Collecting financial documents, an audit report, and a tax retun can be tedious.
Higher Interest Rates: Due to heightened perceived risk, some lenders charge slightly higher interest rates.
Longer Processing Time: Additional scrutiny leads to increased processing time for loan approval.
How Today Finserv Consulting India Can Provide Assistance?
Today Finserv Consulting India provides services for self-employed professionals tailored to your needs. Here’s what we do:
- Eligibility Evaluation: We assess factors like income, credit history, and available documents to guide you to appropriate loans.
- Documentation Aid: We assist with document verification and organization to enhance processing time.
- Loan Product Comparison: We assess a number of lenders to obtain the best interest rates and affordable terms.
- Application Assistance: Step by step guidance is offered from form filling, submission, follow-up, and beyond.
- Customized Advice: Strategies to enhance your loan prospects are provided based on your profession and financial position.
Conclusion
Obtaining a loan for an estate property as a self employed can be done if one is well prepared in advance. Having proper paperwork, a good credit score, and choosing the right lender makes this accomplishment a reality.
Today Finserv Consulting India strives to assist self employed individuals in effortlessly maneuvering through the loan process. Contact us today for a customized consultation and take the first step towards the securing the right home and mortgage for you.
