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A Self-Employed Individual’s Guide to Home Loan Application Process

A Self-Employed Individual’s Guide to Home Loan Application Process

Small businesses are the backbone of the Indian economy as they play a vital role in driving the economic growth of the nation. It not only creates numerous jobs and caters to a diversified base of skills and talent pool in the country but also plays a vital role in building the GDP of the country. Still, it is a tad bit difficult for a self-employed individual to get a Home Loan as compared to salaried individuals.

If you, too, are a self-employed individual and are preparing to write a Home Loan Application, then here is a complete guide for your pursual.

Self Employed Borrowers-

For Home Loan, lenders in India consider the following individuals as self-employed borrowers:

  • Self-employed professionals: Licensed professionals with requisite qualifications such as Lawyers, Doctors, CAs, Architects, etc.
  • Self-employed businesspersons: Individuals who are engaged in retailing, manufacturing, trading, or other small business.

Documents Required

While a salaried applicant has to provide a proof of monthly salary, a self-employed borrower has to establish his regular income. Following documents are required by lenders from self-employed borrowers to process their home loan application.

  • Income Tax Returns of the last three years with audited financials and annexures.
  • Bank Statement of the Current Account for the last six months.
  • Bank statement of Savings Accounts for the last six months.
  • Business Registration Proof and address proof.
  • Professional Qualification Certificate and Professional License.
  • MSME Registration
  • Shop and Establishment Act Registration
  • GST Returns or VAT Returns for the last four quarters.
  • Form 26 AS.
  • KYC Documents (PAN Card, Aadhar Card, Passport, etc.)
  • Property Documents
  • Loan repayment schedule
  • Net worth statement

If required, the lender can ask you for additional documents that you must provide.

Eligibility Criteria for self-employed Borrowers

While the specific criteria might vary across lenders, the general eligibility criteria followed by financial institutions in case of self-employed borrowers are as follows:

  • Must be at least 21 years old at the time of application.
  • Maximum age by the time of maturity of loan can go up to 70 years.
  • Must have a work experience of at least three years in the same profession/ business.
  • Business must register steady growth in profits every year.
  • Must have a positive net worth as per the net worth statement.
  • CIBIL score of 750+
  • Must possess a valid professional license or manufacturing license.
  • Business documents to be verified by a professional on behalf of the lender.

Terms and Conditions

Following are the terms and conditions applicable to self-employed Home Loan borrowers:

  • Maximum repayment Tenor: The maximum repayment tenor can go up to 30 years, depending on the lender.
  • Quantum of finance: The maximum amount available as a Home Loan for self-employed can go up to Rs. 10 crores subject to the LTV Ratio and eligibility of the borrower.
  • Interest rates: Home loan interest rates for self-employed borrowers are slightly higher than that for salaried applicants. For instance, if you avail of a Federal Bank Home Loan, the interest rates for self-employed start from 8.60% per annum, while that for salaried applicants starts from 8.55% per annum.
  • Processing charges: The documentation and verification process for self-employed borrowers is a bit extensive. Thus, lenders too levy a higher processing fee and time for approval of self-employed individuals.
  • Foreclosure charges: Borrowers need not pay any foreclosure charges when pre-paying their Home Loans.

How can a self-employed improve the chances of getting approval on Home Loan?

If you are looking to improve your eligibility for a Home Loan as a self-employed businessperson, here are some tips to help you:

  • Good credit score: You must have a good credit score of 750+ to be eligible for a Home Loan. Though, if you have a steady flow of income, the lenders can consider a Credit Score of 700+ as well. There should be no cases of EMI non-payment or write-off of loans.
  • Continuity in business: You must be working in the same profession or business for at least the last five years. Though the lenders require you to be working in the same trade for the previous three years but extensive is your experience, better are your chances of getting approved for a Home Loan.
  • No cheque bounce or EMI bounce: You must ensure that during the last one year, there should be no instances of inward cheque bounce or EMI bounce from your account. Any instances of non-payment of EMIs or cheque bounce are a cause of concern for lenders.
  • Healthy bank balance: The balance in your Current Account, as well as your Savings Account, should be more than the minimum threshold. Your bank balance is a direct reflection of your repayment capacity and financial solvency.
  • Debtor aging and Cash Flow: The debtor aging ratio should be within the acceptable range according to the lenders as it directly impacts the cash flow in your business.
  • Timely payment of taxes: You must pay your income tax as well as GST or VAT before the due date. Any delay in payment is considered as a sign of irresponsibility or financial stress.
  • Keep the documents ready: The list of documents required for a Home Loan for self-employed is more elaborate as compared to salaried applicants. So, you should keep all the required documents handy.
  • Good reputation: You must maintain a good reputation in the market because the lenders will ask for references. If the references are verified and provide a good report, your chances of getting a Home Loan approved improve significantly.

Now that you know the various aspects of a Home Loan for self-employed Borrowers as well as tips to improve your eligibility, prepare your application accordingly.