Home Loans For The Self-Employed

Many people tend to harbour the notion that getting a Home Loan can be a long and tiresome process, especially if you happen to be a self-employed professional or business owner.

One of the reasons why banks or financial institutions may be a bit apprehensive about sanctioning Home Loans to self-employed individuals is due to the potential uncertainty surrounding their job continuity and income.

Additional Reading: Home Loans If Your Income Is Less Than 20,000

Self-employed individuals or businessmen are free to hang up their boots any time they choose to, making them a risky proposition in the eyes of banks and lenders. The success of a self-employed individual’s business is a crucial factor in swaying banks towards approving loan applications.

When it comes to salaried individuals, all the bank requires as a guarantee are pay slips and proof of job stability. However, in the case of self-employed professionals, banks could ask for several documents in order to verify that the business is a profitable venture so as to ensure that the money they lend will be paid back regularly and in full.

Additional Reading: Don’t Forget About These New Home Loan Tax Benefits

What are the documents required for self-employed individuals who are looking to apply for a Home Loan?

While the documentation required to be submitted for Home Loan approval for salaried individuals are fairly straightforward and simplistic, self-employed individuals or businessmen who are unable to furnish the required documents may find it hard to convince the bank to sanction their loan.

Therefore, it is imperative that you have all the necessary and relevant documents in place, along with all originals for verification, to ensure a smooth Home Loan approval. Submitting complete and correct documentation will go a long way towards dispelling any doubts that the bank may have about your ability to pay back the loan amount you are looking to borrow.

Self-employed individuals are categorised into two:

• Self-employed Professionals (SEP)
• Self-employed Non-Professionals or Businessmen (SENP)

It’s worth noting that self-employed professionals like doctors, chartered accountants, architects etc usually stand a better chance of getting a Home Loan sanctioned than self-employed non-professionals. This is due to the confidence that the bank has in their profession, as well as the substantial income it is likely to fetch the individual.

Additional Reading: Effective Ways To Reduce The Interest Cost On Your Home Loan

Document Checklist for Self-Employed Professionals

With regards to self-employed professionals, the documentation required by a bank in order to sanction a Home Loan is fairly simple as compared to self-employed non-professionals.

If you happen to be a self-employed professional then these are the documents you will be required to submit when applying for a Home Loan:

• The duly signed application form with a passport size photograph
• KYC documents, including your ID proof, proof of residence and proof of age
• Copy of your IT returns for the previous two years along with income computation attested by a C.A
• Copy of the Balance Sheet and Profit and Loss Account of your business for the previous two years attested by a C.A
• 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 or any other mandatory license or registration
• Copy of the Partnership Deed, Memorandum of Association and Articles of Association of your firm, if applicable
• Copy of Form 16A / Tax Deduction Certificate
• Contract details (if relevant)
• Copy of Advance Tax Paid / Self-Assessment Tax paid challan
• Copy of Education Qualification Certificate
• Copy of Professional Practice Certificate
• Cheque for Home Loan processing fee

 Additional Reading: 7 Things To Consider Before Opting For A Home Loan In Your 20s!

Document Checklist for Self-Employed Non-Professionals (Businessmen):

To ensure that the Home Loan approval process goes through smoothly, all self-employed businessmen and entrepreneurs should ensure that their business transactions are clear and transparent.

Start-up entrepreneurs may face some difficulty in getting a Home Loan sanctioned since banks are generally uncertain about the viability and success rate of their businesses.

Banks usually require entrepreneurs to provide IT returns for the previous three years, which is why most young entrepreneurs have to wait for at least two years after the commencement of their business to get a Home Loan sanctioned.

However, certain exceptions do exists. Self-employed non-professionals who have a sound business plan and whose ventures show good returns could get a Home Loan sanctioned during their initial years of business. If the bank is suitably impressed with your business plan and is fairly certain about the success rate of your business, then you could stand a good chance of acquiring a Home Loan. This especially holds true in the case of self-employed non-professionals whose parents or working spouse stands as a guarantor for the Home Loan application.

Additional Reading: 5 Things You Must Know Before Signing Up As A Guarantor For A Home Loan

Usually, banks look for the following criteria to be fulfilled before considering a self-employed non-professional’s Home Loan application:

• The applicant’s gross annual income should be above Rs. 1,50,000
• The applicant should be above 23 years of age and no more than 58 years of age
• The applicant’s business must be successfully operational over the last three years
• In case of a partnership, the applicant must provide proof of the business’ existence along with the partnership deed

Additional Reading: All You Need To Know About Home Loan Eligibility

If you happen to be a self-employed businessman or entrepreneur, then these are the documents you will be required to submit when applying for a Home Loan:

• The duly signed application form with a passport size photograph
• KYC documents, including your ID proof, proof of residence and proof of age
• Copy of your IT returns for the previous three years along with income computation attested by a C.A
• Copy of the Balance Sheet and Profit and Loss Account of your business for the previous three years attested by a C.A
• 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 or any other mandatory license or registration
• Copy of the Partnership Deed, Memorandum of Association and Articles of Association of your firm, if applicable
• Copy of Form 16A / Tax Deduction Certificate
• Contract details (if relevant)
• Copy of Advance Tax Paid / Self-Assessment Tax paid challan
• Copy of business plan
• Cheque for Home Loan processing fee

Any original documents that the bank may require will be used solely for the purpose of verification.

Additional Reading: Special Offers On Personal Loans, Credit Cards, Home Loans And Car Loans For June

If you’re looking to move into a home of your own, then make sure you follow this documentation checklist to the T and you should be well on your way towards getting that Home Loan you so desire. All the best!

And while you’re at it, don’t forget to check out our Home Loan EMI calculator as well.