Self Employed? Steps to ensure that Your Home Loan Application is Accepted

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Home Loan Application
Home Loan Application

One of the most common features in every growing economy of the world is that it begets countless entrepreneurs. People see a potential in the expanding market and jump into it with the ideas and the investments they get. Not only entrepreneurs but even the established individuals earning something from the market like lawyers, doctors, accountants, and non-professionals such as traders, businessmen, and all such persons comprise the section of self-employed persons. And just like any other folk dreaming of having his own home, they also nourish the same desire. Financing the purchase of a home is mostly met by home loans these days. Sometimes there is a chance to avail with the lowest home loan interest rate.

As known to us, home loans are provided by banks and Non-Banking Finance Companies (NBFCs). These lending institutions have specific eligibility criteria for different people to approve the loan application. A salaried individual is likely to have a higher chance of getting a home loan approved than a self-employed, owing to the fixed source of income. In other words, banks do think twice before sanctioning a loan to a self-employed person as he does not have a fixed source of income. There are a few reasons why lending institutions do check things more thoroughly in case of a self-employed home loan applicant.

Why lenders have to think twice?

A self-employed person may earn much more than a salaried individual, but he may have a lesser chance of getting the loan approved. The reason behind this is that banks can have an assurance that the borrower can pay the EMIs from his monthly income. Lenders can also assess the part of the borrower’s income going as EMI, and if the percentage is more than 50%, it may not sanction the loan. However, this isn’t the case with the self-employed individual, who does not has a fixed income, which makes it difficult for the lenders to do the required calculations.

How can a self-employed get his home loan approved for sure?

Here are some tips that you can follow to boost the chances of home loan approval:

Have a Guarantor for your home loan

Besides the standard legal eligibilities, the most important thing for lenders is what if the borrower defaults in paying the home loan? Hence, putting a guarantor, in this case, is likely to help out by increasing the chances of home loan approval. In an event when the borrower is unable or not paying the EMIs, the lending institution can recover the money from the guarantor. This serves as a healthy assurance for the lenders, and the reduced risk factor convinces them to sanction the loan amount.

Co-Applicant for the home loan

Having a co-applicant for your home loan reduces the risk factor for the lenders by half almost. This is because the reimbursement amount is divided between two applicants. The lender now has the confidence of getting full repayment even if the applicant is self-employed.

If the Co-borrower is also Co-owner of the property

The chances of getting a home loan sanctioned multiplies if the co-borrower of the home loan is also the co-owner of the property, for which the loan is being availed. Banks and NBFCs tend to approve this type of application easily without much ifs and buts. However, this particular application type has a bit different eligibility requirement that the standard home loan application. Hence, you must check all these beforehand.

The suggestions, as mentioned above, can only help in increasing your chances of getting a home loan, but only if there is no mistake in the application. Most of the time, a home loan application is rejected because of the mismatch of details in the application form against the documents and also if the documentation is not completed properly. Thereby, it is important to make sure that all the documents required by the lender are submitted. 

Documents required from home loan

Filled and duly signed home loan application form along with

Identity Proof (any one):
  • Voter Card
  • Aadhar Card
  • Valid Passport
  • Driving License
Address Proof (any one):
  • Voter Card
  • Aadhar Card
  • Valid Passport
  • Residence address Certificate
  • Post office saving bank account statement
  • Latest Utility bill
  • Rent agreement on stamp Paper
  • Bank Statements containing the address of borrowers of any commercial nationalized bank

Last three years’ ITRs (income tax returns)

Profit Loss statement of the business

All these documents are a standard requirement in the processing of a home loan for every lending institution. However, the banks may ask something in addition. For example, as mentioned above that home loan with co-borrower and co-owner requires a bit more documentation and formalities than the standard ones. It is also more or less wrong to say that the self-employed individuals have less chance of getting a home loan approved. It is only that lenders have specific rules and norms for persons employed in different fields. Also, if you have a healthy credit history, there are least chances of rejection of the loan application.

Related: – Joint Home Loan: Advantages & Disadvantages

Furthermore, home loans are also available in customized forms for self-employed individuals. In the standard documentation, the IT returns of the self-employed borrower serve as the primary basis for assessment of the loan repayment ability. In other words, this also means that a higher revenue from the business/occupation hooks up the chances of home loan approval. Make sure that you have learned all the suggestions and tips properly and done some homework before hitting any lender with a home loan application. Refrain from submitting multiple applications as it affects your credit score negatively.