Self-employed, and looking to buy a house…

Self-employed, and looking to buy a house…

We list the factors that housing finance companies look for when approving loan requests for self-employed professionals.

It has become something of a norm to borrow a housing loan to finance a home purchase today. But while most applicants are salaried professionals, a fair few are self-employed professionals/non-professionals – and they might find the going a bit sticky.

Banks and financial institutions are careful about approving loan requests from self-employed persons, mostly because their annual income may be erratic and put their repayment capability in jeopardy. The following are 5 factors to know for self-employed persons about to apply for a home loan:

1 The income profile.Most housing finance institutions are wary of granting home loans to self-employed persons because business can be a tricky paymaster. You might have a great financial quarter, followed by two abysmal ones. Your annual income might fluctuate from year to year. The problem is compounded when the business shows decline instead of growth. Leading housing finance companies grant housing loans to self-employed persons who have been in business for at least three years, who have filed IT returns and paid professional tax every year, and which show a minimum cash profit (as stipulated by the company) in the last two years. The lender considers a fixed percentage of net sales and at least 50% of turnover to be reflected in the bank statement.

2 The business profile. The nature of work is also an important consideration. Some occupations, like unlicensed real estate brokers and freelance teachers are a straight ‘No’ for housing loans. Others, like doctors, lawyers, architects, engineers and other professionals with a stable practice receive greater preference than self-employed non-professionals. That is not to say that self-employed non-professionals cannot get a home loan, but subject to a shorter tenure, or a higher interest rate of home loan.

3 The applicant’s age. The applicant’s age is a major factor – the younger one is, the higher the chances of securing funding with a good interest rate of home loan. Most banks and housing finance companies offer home loans to self-employed persons aged between 22 and 65 years in India, with a clear proof of annual income and profit.

4 The loan eligibility. The eligibility computation varies for this type of housing loan. The lender uses your net adjusted income (adding appropriations, interest on any loans, depreciation and net profit). From this figure, any running obligations are deducted, as are rent (if shown in IT returns), and speculative income from investments and any income from capital gains. The remaining figure is used to compute eligibility. The higher this figure, the more the chances of securing the loan.

5 The paperwork. More documentation is required for this type of housing loan. Apart from ID, income and residential proof, you must furnish audited profit and loss account, balance sheet for at least two years, profile of the company since inception, bank statements of all types of accounts for the past six months, details of other liabilities, registration/shop establishment proof, etc.

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