Salaried people are the preferred customers of home loans for most lenders because their creditworthiness is easy to perceive. Their regular and reliable source of income makes their cash flow, expenses and savings easier to assess. Therefore, most banks and housing finance companies (HFCs) offer them home loans at preferential prices compared to the self-employed segment.
However, with the growth of the home loan industry, more and more specialist housing finance companies have emerged that look favorably on the class of self-employed and self-employed borrowers, especially in the affordable housing segment.
Self-employed borrowers may incur slightly higher interest rates than their salaried counterparts. However, with historically low mortgage rates, stable home prices, and government incentives have all increased housing affordability, making this a great time for anyone looking to buy a home. HFCs that specialize in home loans for the self-employed or the self-employed understand this niche and have an advanced underwriting methodology. The self-employed therefore have a better chance of getting their loan approved.
First-time buyers or new customers on credit are also a segment where the demand for credit is high, but banks are generally reluctant to lend due to lack of credit history. So, HFCs in this niche are your best bet if you are a first-time home buyer.
As the Pradhan Mantri Awas Yojana (Urban) nears its March 31 deadline, homebuyers are also advised to apply for a loan while they are still eligible for program grants. Here’s what self-employed people need to know before taking out their home loan.
Who is included in the category of self-employed?
The self-employed or self-employed are those who do not receive a fixed salary at the end of the month. Basically, there are two categories of self-employed or self-employed.
The first category includes professionals like lawyers, accountants, doctors and architects – those who have a professional qualification and practice alone to earn money. The second category includes traders, contractors, painters, insurance agents and shop owners, those who may not have a professional qualification but have their own business.
Both groups of self-employed people are eligible for mortgage loans from housing finance companies. Normally, interest rates are slightly higher for the self-employed than for employees, due to the uncertainty of cash flow.
Who among the non-salaried can claim a mortgage?
A person applying for a home loan should be at least 21 years old and should be able to provide details about their debts, assets, and repayment history.
For self-employed people to benefit from a mortgage, their business must have been in business for at least three years. In addition, they must have proof of income in the form of income tax statements, PAN and TAN card details, bank statements, etc. of the last two years, certified by a chartered accountant.
They may also need to provide other financial information such as personal and business bank statements, goods and services tax returns, and proof of withholding tax (TDS).
What documents are needed to apply for a mortgage?
In addition to the basic documents required to apply for a home loan, a variety of other documents might be required, depending on the nature of the self-employment. This usually includes personal financial information; and documents showing that their business is profitable and has proven its ability to generate regular income.
Qualified professional
Qualified professionals such as doctors, lawyers or architects have a better chance of obtaining a home loan because they are easily employable. Housing lenders typically check professional client lists, income sources, past three-year tax returns, and credit history. Along with this, borrowers will also need to present their practice certificate and registration certificate for business tax deduction.
Owner owner
The owner of a business owner must have his certificate of registration under the Stores and Establishments Act and the Factories Act, as well as tax returns and tax returns. They will also need to submit additional documents such as balance sheets and credit history.
Partner in a firm
If the borrower has a general partnership, he must have an up-to-date partnership deed and proof of identity of the partners, in addition to all the aforementioned documents.
Factors to Consider for Home Loans to Self-Employed Persons
Age
A self-employed person aged 21 to 65 can benefit from a mortgage. Some lenders even consider applicants up to the age of 70, depending on the clarity of the estate plan and valid proof of income generation. However, the younger the applicant, the better the chance that the home loan application will be approved as these loans are usually for a longer term.
Credit history
Credit history is an indication of the applicant’s financial and repayment history. Real estate finance companies typically check to see if applicants have ever defaulted on loans, credits, or repayments. Ideally, defaults or delayed EMIs (equivalent monthly payments) in the past reduce the chances of getting a loan or could lead to higher interest rates.
Debt and Liabilities
Housing lenders typically track all existing loans that the borrower can repay, before giving the go-ahead to apply for a home loan. If a borrower has multiple loans outstanding, including personal loans and credit cards, it could impact their chances of getting a home loan of the desired amount.
Hence, it is advisable to clear existing debts before applying for a home loan. This is especially relevant for a self-employed borrower, as having multiple loans can raise concerns about their future repayment capacity due to the element of uncertainty in income generation.
Credit score
A credit score is a statistical analysis of a person’s creditworthiness, based on factors such as credit history, current finances, and expenses, among others. The higher the score, the more a borrower turns to potential lenders due to a higher probability that they will repay the loan on time. In order for their loan application to be viewed favorably, potential borrowers should seek to maintain a high credit rating through means such as servicing existing loans, keeping credit card loans low, and paying their bills. on time.
Co-applicants
Adding a co-applicant can help increase your mortgage eligibility, in addition to getting better interest rates and higher loan amounts. This is especially true in the case of a salaried spouse or co-applicant, or female co-applicants, as many housing finance companies offer better rates and additional benefits to female borrowers as an incentive to buy a home or to become co-owners of the accommodation. Houses. Even government programs offer incentives to women who buy a house.
Deposit
Home loan applicants who make a large down payment are more likely to get a loan. Indeed, the amount of the mortgage will be lower than that of a person who pays a smaller down payment. It also increases the chances that your home loan will be approved, as it increases the lender’s confidence in your ability to repay the loan.
Property value
When applying for a home loan, all original documents relating to the property must be submitted to the lender. This is because the property serves as collateral for the home loan and the lack of proper documentation or legal issues relating to the property could reduce the chances that the home loan application will be approved.
How long can a mortgage last?
The duration of the loan for self-employed persons depends on your current age. Most lenders would offer you a term of 20 to 25 years. However, some lenders may also limit it to 15 years. Prospective borrowers should consider which mortgage lenders offer what loan term and other requirements of their loan application.
Securing the loan
While it is relatively easier for employees to obtain home loans, today there are several housing finance companies that cater to the self-employed segment and new credit customers. As long as borrowers are able to provide their financial information and that of their business, approval of the application can be a reality.
To improve the chances of getting a home loan, self-employed people are advised to make as high a down payment as possible, save substantial money, and have a good credit rating. It is important to establish an income profile so that the lender is confident in their ability to repay the loans.