Can Self Employed Get Home Loan?

We all know that we need employment certificates and salary slips for applying for a home loan. What if you are self-employed, and thereby you do not have the said documents to convince the lenders that you have the financial stability to repay the loan? Also, a business may not necessarily have a steady and regular income as in case of salaried employees, because businesses can be seasonal with cycles of high and low periods. So, can the self employed get a home loan?

The answer is, yes.  Self employed home buyers can avail home loans. Read on to know about the process involved in home loan for self-employed, what are the home loan documents for self-employed, self-employed home loan eligibility, home loan interest rate for self-employed and other details pertaining to self-employed home loan.

Self Employed Categories for Home Loan

Self employed can be classified in two categories, and both are eligible for home loan, subject to other factors which we will discuss in the next section.

Self Employed Professionals 

These include doctors, lawyers, chartered accountants, etc. who have set up practice around their professional qualification.

Self Employed Non-Professional 

These include shop owners, building contractors, and all kinds of traders, and this category does not involve any professional qualification.

Self Employed Home Loan Eligibility

So both, self employed professionals and non-professionals are eligible for home loan, if they are able to fulfill the self employed home loan eligibility criteria as required by lenders.

1. The business/practice should be at least three years old.
2. They have registered for GST.
3. They have a steady income.
4. They have educational qualifications.
5. They have a good credit history.
6. They have not defaulted any loans in the past.

Approval of Home Loan for Self Employed

Banks would be eager to approve home loans for self employed, but at the same time, they will have their appraisal methods to make double sure that the borrower has the capacity to repay the loan.  To that effect they will review each application and approve accordingly. 

• Having professional qualifications is a kind of assurance that the borrower has the skills and domain knowledge needed to be successful at the business, and translate it into steady income. It is not a prerequisite to have an educational qualifications, but banks tend to favor applicants who have it.  As such, self-employed professionals stand a higher chance of getting approval for home loan, than self-employed non-professionals. Yet, in practical terms, both are eligible, if all the criteria for approval for home loan for self employed are met.
• Likewise, banks are also strict about credit history while approving home loan for self employed people, just as they are in case of salaried people.  So, it is important to maintain a good credit history and a CIBIL score, and not default any loans, to increase the chances of getting a self employed home loan.  
• Banks may also consider the overall loan burden on the applicant, if they are repaying other loans at the time of processing the loan application.  They might look at the capacity to repay the home loan in view of the other existing loans.

Home Loan Documents for Self Employed

The following documents need to be submitted for self employed home loan.

1. Proof of tenure of self-employment (minimum 3 years in operation).
2. Proof of income for the last two years - namely, IT returns, bank statements or current, or savings account.
3. Personal bank statements.
4. Copies of PAN and TAN cards.
5. Proof of payment of GST.
6. P & L statements.
7. Age proof - should be 21 years of age.
8. Educational certificates.
9. Proof of identity (Aadhar, Passport, voter ID, photo credit card, driving license).
10. Home address proof.
11. Business address proof  (business registration certificate, municipal license, etc.)

Home Loan Interest Rate for Self Employed

Generally, interest rates may be slightly higher for self employed people, than that for salaried individuals.  It would differ from one bank to another.  Overall, you can  expect the home loan interest rate for self employed to be about one to 3 percent higher compared to salaried persons.

Like in case of salaried persons, home loan for self employed can have fixed or adjustable interest rates  The adjustable interest rate depends on the Retail Prime Lending Rate (RPLR) of the lender, and it is generally adjusted every quarter.

Processing Fee on Self Employed Home Loan

• You may be levied a fixed amount of fee towards loan processing charges - could be, for example Rs. 5000 or Rs. 10,000.  
• You could also be charged a percentage of the loan - say 1.5% of the  loan amount.  
• It can differ with respect to the bank, and if you are lucky, you may also be waived of the processing fee, if the bank has such promotional deals at the time.

Other Aspects of Home Loan for Self Employed

The finer details can differ from bank to bank, but overalls you get the same benefits that salaried persons get.

• You get tax rebate on principal as well as interest component of the home loan, like salaried persons.
• You can have a salaried co-applicant, if your spouse is working.
• You can get up to 90% of the property cost, depending on your eligibility.
• You can switch between fixed and adjustable interest rate.
• Home loan tenure can be 10, 20, or even extendable to 30 years.
• You can prepay the loan, or increase EMI, if you wish.
• You may not have prepayment charges if you choose to prepay the loan.
• You can apply in a location where you are not residing.

In recap, it is important to note that proof that the business is generating profits, along with a clear credit history, are the two biggest factors in bank appraisals of home loan for self employed persons.  You can also have a co-applicant who is a salaried person.  Go ahead and apply for home loan, and also enjoy tax rebate every year.