Being a self-employed individual, you are your own boss and enjoy ample work-time flexibility. However, the comforts come along a lot of uncertainty. Owing to uncertain income, many small businesses and self-employed professionals find it rather challenging to get approved for a Home Loan at a low rate. To get approved for a bank loan, you need to have a stable monthly income and must have a proof for the same.
Though this doesn’t mean that you cannot avail of a customised product as per your requirement. All leading banks like HDFC Bank, SBI Home Loan, Citibank offer attractive deals on Home Loan for self-employed, business owners.
Owing to diversified categories of businesses and occupations, most banks like Citibank Home Loan for Self-employed individuals are divided into two different categories, such as:
Self-employed professionals: Doctors, Chartered Accountants, Lawyers, Architects, etc.
Self-employed businessmen: MSME owners, Start-up owners, Small traders, etc.
Thus, you must apply for Home Loan only after researching the available offers. Let’s find out some of the time-tested tips to get assured for approval of your Home Loan Application:
Like any other loan product, you must have a good Credit Score to avail a Home Loan. Lenders interpret your creditworthiness from your credit rating. So, you must observe healthy financial habits to maintain a good Credit Score. It is also advisable to monitor your credit information report regularly and take corrective actions in case of any discrepancies. Moreover, having a good Credit Score allows you to avail of the lowest interest rates against your Home Loan application. For instance, you must have a CIBIL Score of 750+ to avail of an Axis Bank Home Loan.
You need to establish your repayment capacity to the lenders before availing a Home Loan. For this, you need to assure the lenders of your income level through documents like Income Tax Returns, GST Returns, Bank Statements, Financial statements like Balance sheet, Profit and Loss account, etc. The primary concern of the lenders is to secure the repayment of the Home Loan, so you can also disclose additional sources of income such as rental income, income from interest, etc.
Another important factor that you need to pay attention to is maintaining an excellent Income To Debt ratio. This ratio defines the percentage of your income that goes towards EMI payments. You need to ensure that your DTI ratio stays below 50% at all times. If it is higher than 60%, that is a red flag for lenders as it indicates your dependence on loans.
You must pay your EMIs and Credit Card bills on time. This is not only important for your Credit Report but also to establish your financial discipline to the lenders. If you default on any of the instalments or have overdue Credit Card bills, it will affect the outcome of your Home Loan application.
When you Apply for a Home Loan for self-employed, you should prove to the lenders that you enjoy a good cash flow. With financial statements like debtor aging, creditor aging, cash flow statement etc., you can prove that you enjoy a good cash flow and will have no problem serving the home loan EMIs.
If your business financials allow, you must opt to make a higher down payment towards your Home Loan. This will not only improve your eligibility but will also reduce the EMIs that you will have to serve, thereby reducing the overall interest cost. Most lenders finance between 70-90% of the property value, so you must try and opt for the least amount required for a Home Loan.
With the presence of several lenders in the market, it can be confusing to identify the best loan provider. The easiest way to do so is to check the eligibility criteria for different lenders and then select the one which matches your requirements the best. This exercise will save you from the hassles of payment of application fees multiple times.
You must keep all of your financial and KYC documents ready. It is advisable to prepare multiple sets of all the documents to avoid a last-minute rush. Bank statements, income tax statements, GST returns, net worth statements, address proof, ID proof, business license, and registration are some of the documents that are required by lenders to process your application.
To prove financial discipline to the lender, make sure that you pay your taxes on time. Whether it is your personal income tax return, business income tax return, or GST return, you must file these returns before the due date and pay your taxes on time. This will improve your eligibility for a Home Loan for self-employed.
Following this checklist, you could be rest assured of a hassle-free and swift approval of Home Loan from your preferred lender.
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