Applying for a home loan as a salaried person is substantially easier. Because of their consistent cash flows, spending, and savings, it is easier to judge their creditworthiness. When it comes to buying the first house as a self-employed person, however, there are numerous hurdles. A self-employed person may find it challenging to obtain a home loan in India because they lack a consistent source of income and a solid credit score. Most consumers are unaware of the eligibility criteria, documentation requirements, and other variations between the two types of house loans.
Professionals with their practice, such as lawyers, chartered accountants, and doctors, are considered self-employed. It also includes insurance agents, store owners, freelancers, and self-employed traders.
Eligibility for self-employed
Age: You can get better home loan terms from your lender if you have more years on your side. As a result, younger self-employed applicants have higher home loan eligibility and can benefit from a longer tenure.
Income: Proof of consistent income is very important for self-employed individuals when applying for a home loan. Typically, your lender will request three years of income tax returns, as well as profit, loss, and balance statements for your company.
Business continuity: Your house loan eligibility is also highly influenced by proof of business existence and profitability. A successful, long-running, and profitable business is an indication of good home loan repayment abilities.
Creditworthiness: Before signing off on the home loan, the lender checks to see if you have any other loans, debts, or missed payments. Your credit score can help you determine your creditworthiness.
The following list of self-employed home loan paperwork will come in handy when applying for a housing loan, whether you are an applicant or a co-applicant:
- Address Proof
- Income proof
- Age proof
- A document of the property purchase agreement
The following is a list of income proofs that self-employed borrowers must submit with their Home Loan application:
- Professionals should have been in business for at least 3 years, while non-professionals should have been in business for at least 5 years.
- Personal and Business Banking At least three-year statements
- Evidence of at least two years of timely filing of GST, TDS, and income tax returns
- A CA’s income proof certification.
Before you apply for a self-employed housing loan, you should be aware that the interest rates for self-employed borrowers vary slightly from those for salaried borrowers. The explanation for this is simple: the lender has a somewhat higher risk when dealing with the former.
However, keep in mind that interest rates fluctuate. You can pick between a fluctuating and a fixed interest rate as a self-employed applicant. Fixed interest rates, on the other hand, are more expensive and are only occasionally offered. When the PLR rate changes, the rate of interest is adjusted accordingly.
Can self-employed people acquire a home loan without having to show proof of income?
Most self-employed applicants from the informal sector lack the necessary income documentation. However, even without formal income proof, a self-employed professional or non-professional can obtain a Home Loan approval. If they meet all other conditions and exhibit gross professional receipts or commercial turnover, this is feasible.
Even if part of the income documents are missing, a lender may approve a loan application if the applicant has a good history of loan payback and an exceptional credit score. As a result, your choice of loan source is crucial. To boost their loan eligibility, applicants might add a co-applicant, such as their spouse or immediate family member.