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How To Get A Home Loan When You’re Self-Employed

by Uneeb Khan

The world today is transitioning to a gig economy with the global growth of start-up culture. Working as a freelancer is a popular career choice for people not wanting to get stuck in a routine desk job. While some people choose this option for themselves, many have been forced to adopt this lifestyle after the Covid-19 pandemic.

Besides the lack of a steady paycheck every month, freelancing has several financial issues to worry about. The irregular payments can become frustrating after a point when you apply for home loans. This is because home loans have been designed primarily for people with steady office jobs and regular incomes.

Home Loans for Self Employed Individuals:

As a self-employed entrepreneur, you can get a home loan as easily as a salaried professional would. PNB Housing provides home loans that are customised for the needs of self-employed individuals.

Self-employed individuals fall into two categories:

  • Professionals: This is made up of engineers, lawyers, doctors, MBAs, CAs and other professionals with an educational qualification supporting their expertise and a business setup.
  • Self-employed non-professionals: This category includes contractors, traders, agents etc who don’t have an educational qualification for their services.

Home Loan Eligibility for Self-Employed Individuals:

A self-employed individual is eligible for a home loan either as an individual or jointly. All future owners of the property you wish to purchase must be co-applicants for the application. However, not all co-applicants need to be co-owners. Typically, a co-applicant is a family member.

Key factors considered:

  • Candidate’s repayment capacity and income: For a financial institution to better understand an applicant’s repayment capacity, they require the borrower’s income tax returns. You also need to show a minimum of 2 years of audited business statements of profit and loss, along with your business balance sheets and account statements.
  • Applicant’s profile: There are various parameters used for determining and assessing you. This includes your age, educational qualifications, and the number of an individual’s dependents. A person with few dependents and greater education has higher income opportunities as well as adequate savings and disposable income. A young person has more time to repay the loan than an older person. You can also choose to switch to a new role, have more time to grow your business/practice, and earn more. This will again mean greater disposable income and better chances of paying back.
  • Overall financial situation: Your creditability depends on your general financial situation. A lender will first examine your present debts like personal loans, credit card bills, etc. So, when you are preparing to take a loan, make sure your other debt is lower or paid back on time.
  • Entrepreneurial ability: For people who are self-employed, the entrepreneurial ability or capability to generate new revenue streams or higher income is vital. A lending institution will assess the profitability of your business and the duration for which you have been operating the practice on your own. It’s a huge plus if businesses can share risk assessments and factors of risk in the business.

Each of these elements is looked at together, including a borrower’s financial situation overall and entrepreneurial capabilities. The metric used to measure success is usually your IT returns and audited finances. Before applying for a home loan, ensure the accounting books are in order and updated.

Home Loan Documents Required:

Like any other financial product, home loan approvals require a set of vital documents. The co-applicants or single applicant must submit these documents along with a signed application letter to get their loan approved. These documents are:

  • Proof of identity (Passport, Voter Card, or Aadhaar Card Copy)
  • Proof of residence (Passport, Voter Card, Aadhaar Card, Bank Account Statements, Property Tax Receipts, Utility Bills)
  • Proof of income (IT Returns, PAN Card, TAN Card, Current Account Statements)
  • Certified financials (Audited Profit and Loss Account and Balance Sheet)
  • Property related documents (Copy of the Property Purchase agreement)

Loan Amount Allowed:

The total amount for the load that PNB housing approves will depend on several factors as mentioned above. The maximum that you can be offered will change depending on the property cost.

  • Loan up to Rs.30,00,000 – 90% of property cost.
  • Loan up to Rs 30,01,000 – Rs. 75,00,000 – 80% of property cost
  • Loan over Rs, 75,00,000 – 75% of property cost

The loan market shows great promise today for self-employed individuals. It seems to be adapting well to the changing economy and evolving working styles of individuals.

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