Written By- Jaya Pathak
Buying a home is a dream of many individuals. Yet for the self-employed individuals, purchasing a home along with loan options might feel like a complicated and overwhelming process. The salary professionals have a steady source of income. They receive monthly pay checks, and they have a predictable financial record. On the contrary, the self-employed individuals often have fluctuating incomes along with diverse revenue streams and variable tax filings.
The financial complexity makes lenders to scrutinize their loan application more carefully. However, multiple home loan options are available to cater to the need of self-employed individuals. Having a depth knowledge about diverse options, the self-employed individuals can improve the chances of their loan approval henceforth getting the home loan successfully.
In this blog, we will discuss several home loan options available for self-employed individuals.
Understanding home loans for self-employed individuals
Most oftenly lenders categorize home loan applicants into two broad categories- Salaried individuals and self-employed individuals. Self-employed individuals are entrepreneurs, business owners, consultants, freelancers, and professionals such as doctors, lawyers and other independent contractors. The self-employed individuals do not have a steady source of income denoting that they do not have a fixed monthly salary. The financial institution assessed their income stability, credit worthiness and repayment capacity quite differently than the salaried individuals.
There are numerous factors which is considered by lenders for self-employed individuals. Some of them are listed below:
- Lenders check for a stable and consistent source of income over a period of at least two to three years. If you have income consistency, the chances of home loan approval are quite high.
- The financial institutions consider credit score. A higher credit score improves the chances of your loan approval.
- Financial institutions also assess the profitability and sustainability of the business of self-employed individuals.
- The lenders can also consider bank statements to check regular transactions and cash flow patterns which will help them to evaluate your financial status.
Types of home loan options for self-employed individuals
- Regular home loans
Various financial institutions and companies provide standard home loans to the self-employed individuals. Such loans function quite like those loans which are provided to the salaried individuals, but they required some additional documentation to validate the Income stability. The financial institution can look of your credit score and repayment history. They can also ask for your financial statements for the past two or three years. For the higher chances of your loan approval, you must have a stable business operation for at least two years. The regular home loans offer the benefit of customizable tenor and repayment options. You can also get competitive interest rates based on the applicants credit profile.
- Self-employed professional loans
There are self-employed professionals including doctors, Chartered Accountants, architects, lawyers, and other independent contractors read it they often have some structured incomes despite being an independent practitioner. Various financial institutions offer specialized home loan schemes to the self-employed professionals. The professional must have a professional degree as well as experience in his or her respective field. He or she must have a stable income record and audited financial statements. The self-employed professional loans tailor the interest rates based on professionals earning capacity. It can offer higher loan amounts for established professionals.
- Self-employed non-professional loans
There are individuals who own small businesses, retail shops and work as independent contractors without having a professional degree. The financial institutions offer self-employed non-professional loans to cater to the need of such individuals. But these loans require more extensive documentation. The individual must have business ownership proof such as registration documents, GST returns, trade license and others. He or she must have a consistent cash flow supported by bank statements. The self-employed non-professional loans is available for a wide range of businesses and occupations. It provides higher flexibility in assessing income sources.
- Loan against property
There are self-employed individuals who find it difficult to prove sufficient income through the traditional means. But they can get loan against property. By mortgaging and owned residential or commercial property, applicants can get substantial loan amounts. The applicant must have an ownership of a valuable property to be mortgaged. He or she must have a sufficient property valuation as per the assessment of lender. He or she must possess a good credit history and repayment record. The mortgaged property provides a higher loan amount in comparison to unsecured loans. It offers lower interest rates due to collateral backing.
- Home loan with alternative income proof
There are several housing finance companies which provide home loans on the basis of alternative income documentation. Instead of relying completely on ITR, these financial institutions consider business invoices, cash transactions, bank deposits and estimated income from business activities. It requires a demonstrated history of income generation, bank statements highlighting the regular credits and satisfactory property valuation. The home loan with alternative income proof provides greater flexibility and income proof. Additionally, it is quite easier than the traditional bank loans.
- Pradhan Mantri Awas Yojana for self-employed individuals
It is a government scheme which offers credit linked subsidies to self-employed individuals who comes under the economically weaker section and lower income group categories. The government subsidies on interest rates reduces overall loan burden. It also lowered down payment requirements. However, there are certain eligibility criteria such as the individual must be a first time home buyer. His household income must be below under some specified limit. He or she have a property purchase in approved urban areas.
What are the tips to improve home loan approval chances?
- Maintain a good credit score. If your credit score is above 750, it increases the chances of your loan approval. It also helps you to secure better interest rates. The self-employed individuals must clear their existing debts avoid any delay in approval.
- Income tax returns must be filed consistently for at least two or three years prior to applying for home loan. It will establish a steady income record, making lenders more confident in loan approval.
- A healthy bank transaction must be maintained. The self-employed individual should regularly deposit to bank and manages his finances. It will reflect a stable source of income which will contribute to the chances of approval of loan.
- The second part individual must keep his or her business financials organized. The balance sheets audited financial statements and many more validate income stability.
- The self-employed individual might consider a co applicant who might be his or her spouse or family member with a stable source of income. It can improve loan eligibility and reduce the financial risk in lender’s eyes.
- You must compare different lenders including banks and other financial institutions. Choosing the right lender will help you in selecting the most suitable home loan option with lower interest rates and flexible terms.
Conclusion
The self-employed individuals face unique challenges in the approval of home loans idiot but with the help of various strategies and financial solution and their aspiration can be achieved. By following the above-mentioned tips, the business professionals and owners can successfully navigate the home loan process. With careful planning and right approach, owning a home is not merely a dream.
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