Published on 13 October 2016

Key areas you need to be aware of while getting a home loan if you are self-employed

Home loans or mortgages are designed to help any and every homebuyer, provided they meet specific prerequisites. From credit score to income, the loan to value ratio or the down payment to the type of employment or business one has, everything will be under consideration while determining eligibility. From employed and self-employed professionals, business owners and independent contractors or freelancers. The concept of the home loan doesn’t differentiate on the basis of the type of employment. However, the eligibility factors or the criteria for approval would vary.

There is no alternative to home loan or mortgage if you wish to buy a property, unless it is a commercial property in which case you can use a business or corporate loan. For self-employed professionals, the exact criteria will vary from one bank to another but the eligibility factors will be different from that of employed professionals.

  • You would need your tax returns and financial statements. The purpose is to show how much in taxes you have been paying, confirming your income. The financial statements are assessed to deem financial eligibility, whether or not you can afford the instalment or the mortgage. There are various online home loan calculators that you can use to deem eligibility and how much you can comfortably afford towards a mortgage. For self-employed professionals, the approach to calculate dependents and other financial commitments is similar to that of employed people. However, some stringency is expected as self-employed professionals don’t have the financial security of employed professionals. Self-employed professionals may incur losses and may not earn anything in a given month or quarter.
  • Self-employed professionals must have been in their present business or profession for at least twelve consecutive months. The longer one has been in the profession, continuously, the better. Depending on the nature of self-employment, there should be GST paid for the same period of time that one has been in the specific line of work. The GST statements would be crucial. Bank account statements would also need to be furnished.
  • The income, the GST paid, the taxes paid and filed for, business activity and the amount of money one can comfortably spare will determine the loan amount. Usually, self-employed professionals can borrow up to 80% of the sale price of the home but various factors will influence the final loan to value ratio.

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