A Complete Guide on Home Loans for the Self Employed

Many people dream of owning a home in their mid-20s, 30s, or mid-40s. People in India are generally considered settled when they have a house property in their name. However, in the scenario of rising property prices, owning a house through hard cash is a pinch to long-held savings. Here is where home loans help. 

The home loan application process

  • After you have assessed the need for a home loan, you need to apply to the lender. The lender will specify the list of documents essential for the application processing.
  • After final document submission, the lender evaluates the application on various grounds such as repaying capacity, earning capacity, number of dependents, credit profile, etc. 
  • The lender links age with repaying capacity. Younger individuals can apply for a longer-term home loan with lower interest rates and a low down payment.
  • Your entrepreneurial ability to run the existing business is assessed by your educational qualification and business experience years.
  • The credit score from credit rating agencies judges an individual’s credit profile. However, a lack of credit score is not a barrier for the self-employed applicant.

Home loan application essential documents

  • Proof of Income – Income tax return and current account statement.
  • Proof of financial position – Audited Financial Statements.
  • Proof of property purchase – A notarized agreement between parties along with witnesses.
  • Proof of identity – Aadhar Card and PAN Card.
  • Proof of residence – Bank account statement, utility bills, Aadhar Card.

Important pointers for the self-employed applicant

  • The application can be made individually or jointly. A co-applicant can be any family member or even your salaried spouse.
  • Current income is evaluated by analyzing the past 3 years’ Income Tax Returns. Repaying capacity is evaluated using the past 2 years’ audited financial statements. 
  • You may have a high chance of approval if you have a good credit score or provide a large down payment.
  • The amount of a home loan depends on several factors. Using the home loan EMI calculator, you can evaluate the monthly outflow for a higher loan amount.
  • Repaying capacity is further judged by assessing the number of dependents on the self-employed. The lower number of dependents means higher disposable income and, thus, higher repaying capacity.
  • There are tax benefits for repaying the principal portion of the home loan and even the interest on the home loan. However, ensure to check your monthly outflow using the home loan EMI calculator.
  • The lending institution, the self-employed borrower, and the loan service need not be at the same place. With digitization, all involved parties can be at different locations.
  • The repayment options can be either an EMI-based option calculated using a home loan EMI calculator, an accelerated repayment option that will increase the EMI amount or a telescopic repayment that allows extension of loan tenure up to 30 years.
  • The home loan interest rates can be of two types: adjustable-rate and fixed-rate home loans. In the case of an adjustable-rate home loan, it is revised quarterly depending on the base Retail Prime Lending Rate (RPLR) affecting home loan tenure. However, the EMI amount may or may not change. Under fixed-rate, the home loan interest rates are fixed at disbursement. However, it is fixed only up to a specified period. After that, it automatically converts into an adjustable-rate.
  • Under the adjustable rate, the loan tenure can be extended up to 30 years, and in the case of fixed home loan rates up to 20 years.
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