The best feature of a home loan is that almost any Indian citizen can apply for it. So, whether you are a salaried or self-employed professional or self-employed non-professional, you can apply for a low-interest home loan.
When you apply for a home loan, the lender seeks some documents to verify your profile. The documents help them identify your citizenship, age, income profile, place of residence, and property status.
This article mentions the documents borrowers need to submit to avail of home loans for self-employed people and the factors Indian lenders consider to determine the home loan EMI.
Which Documents are Required to Avail of Home Loans for Self-Employed Individuals?
Filling out an elaborate application form is the first step to applying for home loans for self-employed people.
You can visit the lender’s branch office to get the form or download the form online. Some lenders also offer an online form submission facility. Ensure to cross-check the details since any false information may prompt the lender to reject your loan application.
While the PAN card is a mandatory identity proof for availing of home loans for self-employed, you can also submit a government authorised document, such as the passport, Aadhar card, voter card, driving license, etc., as the identity proof.
Providing the correct address is important because all official letters will be sent to this address.
You may submit documents like Passport, Aadhaar Card, Voter ID, Driving license, latest telephone bill, latest electricity bill, bank statement reflecting the current address, life Insurance Policy, or Credit Card Statement.
Since you are applying for a home loan for self-employed, you must prove that your business is legitimate. Hence, you must provide address proof where your business is registered.
You can submit documents like Trade License Certificate, Shops & Establishment Certificate, PAN Card/Sales Tax/ VAT Registration Certificate, Partnership Deed / Memorandum of Association for companies, or SSI Registration Certificate.
The approval of home loans for self-employed depends heavily on the borrower’s income status. To verify your income, lenders need documents like:
- Income Tax Returns from the past 2-3 years
- Chartered Accountant certified balance sheet and Profit & Loss statement
- six months’ bank current account statement (business)
- six months’ bank savings account statement (personal)
You will also need to submit between one and three passport size photographs with the application form.
Processing Fee Cheque
After the lender gets satisfied with the documents you provided, they will ask you to hand over the processing fee cheque. The processing fee might be up to 1% of the loan amount.
Factors Indian Lenders Consider to Determine Home Loan EMI and Approval
Here are the top factors Indian lenders consider for the approval of home loans for self-employed:
- Down Payment – Self-employed professionals need to make a minimum down payment of 10% of the loan amount while availing of home loans. However, increasing the amount a little assures the lender that you are a safe candidate since you have substantial savings.
- Credit Score – A credit score of 750 and more can add stars to your financial profile, prompting lenders to offer you the best rates. Lower interest rates also mean low home loan EMI.
- Repayment Capability – Lenders scrutinise a borrower’s income documents carefully before approving a home loan for self-employed people. They prefer borrowers with a stable monthly income. Sometimes, lenders specify a minimum income threshold for accepting applications. If your income is reasonably higher than the threshold, the chances of loan approval will be considerably high.
- Existing Debt – The higher your debt, the lower the debt to income ratio will be. The debt to income ratio is a key parameter a lender evaluates before approving the loan. It is advisable to keep the debt to income ratio below 50%. If your monthly income is INR 1 lakh, your debt must not exceed INR 50,000 (including home loan EMI).
- Loan Tenure – The repayment term can be up to thirty (30) years. The EMI will be more affordable if your loan term is high. However, you may make partial payments to clear off your loan burden earlier. As a fact, there are no pre-closure or prepayment charges on floating-rate home loans for self-employed.
Home loan for self-employed allows every business person to fulfil their dream of becoming house owners. However, knowing the documents required and the factors responsible for loan approval is crucial for better preparation.