Home Loans for Self-Employed Individuals

Business Home Improvement

If you are a self-employed professional and are looking to apply for a home loan, you must know that the lenders have a specific requirement. Read on to know more about home loans for self-employed.

A famous English novelist, once said, ‘there is nothing like staying at home for real comfort.’ Many Indians can resonate with this quote as for most people in India, buying a home is one of their biggest aspirations. But, buying a home requires a significant investment, and not many are not able to afford it out of their savings. This is where the financial organisations that offer home loans play an important role.

The lenders not only help you get the required funds but also give you the flexibility to repay the amount in modest instalments over 15-30 years. No matter, if you are a salaried employee or a self-employed professional, you can get your loan approved if you meet the lender-specific eligibility requirements.

Today, the lenders in India have designed home loan products specifically to meet the needs of the self-employed. And, lenders usually categorise self-employed individuals into two categories, professionals and non-professionals. Professionals include engineers, lawyers, doctors, chartered accountants, etc. who have received specialised training and education in their domain and have set-up their own business. The non-professionals include contracts, commission agents, cab drivers, traders, etc., who do not have any qualification in their business area.

Eligibility Criteria for Self-employed individuals

While the eligibility requirements for the home loan vary from lender to lender, most financial organisations consider the following factors.

  • Income and repayment capacity.

As a self-employed individual, when you can apply for a home loan, you must submit the profit and loss account statement and balance sheet of your business for the last two years and the IT returns of three years to showcase your income.

  • Borrowers’ profile

The lenders assess your home loan application based on your age. The younger you are, the more time you have to repay the loan, and thus you can get a loan for a longer-term. Some lenders assess the borrowers’ eligibility based on their educational capacity and the number of dependent family members.

  • Financial position

Your ability to repay the loan is assessed based on the overall financial position. The lender will check if you have any existing debts such as outstanding personal loan, or credit card bills. The lower your current debts, the better chances you have to avail a home loan.

Documents required for getting a home loan

The documentation for self-employed individuals is different from salaried employees. You must submit the following documents along with the application form (duly signed) for loan approval:

  • Identity proof (you can submit a copy of Aadhaar card, passport, voter ID, driving license)
  • Residence proof (you can submit a copy of Aadhaar card, passport, bank account statement, utility bills)
  • Income proof (you must submit a copy of PAN card, recent IT returns, current account bank statement, audited profit and loss statement, balance sheet)
  • Property-related documents (copy of the purchase agreement)

Important things self-employed professionals should remember while applying for a home loan.

  • The lenders use specific appraisal methods while processing the home loan application for home loan self-employed individuals. Typically, the lenders stress on reviewing on the business-related financial documents to get an idea about the business performance.
  • The lenders consider the net profit (after deducting depreciation) while determining the maximum amount you can borrow.
  • The lenders check if you have filed your IT returns. So, it is advisable to be tax compliant and diligently file your IT returns.
  • You can get tax benefits on the repayment of both the principal amount (under Section 80C of the Indian Income Tax Act) and the principal amount.
  • If you offer a larger down payment than the minimum requirement and if you have maintained a clean credit history, most lenders will consider you as a safe borrower, and you can get approval for a higher amount.
  • You can apply for a joint home loan with a salaried family member to increase your home loan eligibility.