Getting a home loan can be a tedious and tiresome task for a self-employed professional. Also, the method of calculating the loan eligibility is quite different from the salaried borrowers. One of the primary reasons behind this is the unreliability in income flow and job continuity. Self-employed professionals do not have it easy when applying for a home loan. They must go through several documentation processes when compared to salaried employees. The main concern for the lenders is the consistency and stability of the business owned by self-employed individuals.
Take a look at the detailed information on how banks process home loans for self-employed professionals-
There are two categories of a self-employed individual.
1) Self-employed professionals
2) Self-employed non-professionals or businessmen.
The following are the host of documents required for both individuals when applying for a home loan.
For self-employed professionals-
- Proof of Identity
- Tax returns audited profit and loss statement with the balance sheet of the past two years,
- A brief business profile of your company’s firm’s letter-head
- Savings and current bank account statements of the past six months
- A copy of the partnership deed
- Educational as well as professional qualification certificates.
- You may have to submit a salary certificate in case you are also employed with another organization
- The shop establishment license will be required in case of professionals working in stores.
For self-employed non-professionals or businessmen-
- A copy of your IT returns for the previous three years along with income calculation attested by a CA
- Copy of the Balance Sheet and Profit and Loss Account of your business for the previous three years attested by a CA
- A brief business profile on the letterhead of your firm or business
- Bank statement of the last 6 months for Savings Account, Current Account, O/D Account
- Copy of VAT Registration / Shop & Establishment License is required to apply for a home loan for professional
The age norm
To avail of loans, a SEP must be between 22- 65 years of age. Some banks lend to people of up to 70 years of age if a proper continuation plan and the income proof are available.
The income norm
A SEP must have spent at least three years in his business to avail of a home loan and should be able to show a minimum cash profit of Rs 1.20 lakh in the past two-year period.
The calculating method
For SEPs, banks use the gross receipts method to calculate eligibility. Every bank has the fixed multiplier for the average gross receipts of SEPs. The EMIs for all the existing loans are deducted and a fraction of depreciation is added in your total income.
The lenders conduct visits to the property premises to understand your business model and turnover. Your business should be able to show growth in cash profit, turnover and the tangible net worth in the past few years when you apply for the loan.
The longest home loan tenure for SEPs is 20 years but many banks restrict it to 15.
The LTV & Fixed Obligations to Income Ratio (FOIR)
The banks keep the maximum fixed-obligation-to-income ratio for SEPs at 70 percent. Any relaxation in these norms is totally the lender’s advantage. The loan-to-value norms, on the other hand, are subjected to the market value of the property. The LTV is generally 75 percent for home loans above Rs 75 lakh, 80 percent if it ranges between Rs 20 lakh and Rs 75 lakh, and 90 percent for loans below Rs 20 lakh.
While maintaining a clean bank statement is mandatory, any cheque bounces may also act negatively for you. The regular income credits must be visible in your bank statement every month.
Getting a home of your own could be your major goal in life. If you are self-employed and are looking out for one, plan and prepare the above-mentioned documents ready. Apply for a home loan online and get instant approval on your home loan. It is suggested that before applying for home loan, give yourself enough knowledge about home loan to avoid mistakes.