Self-employed? How to get a home loan

We worship the self-employed and entrepreneurs. But these people face difficulties in getting a home loan. Lenders just grow suspicious while dealing with a loan applicant who is self-employed.

Sushala Vishwanath is a Bangalore-based interior designer is in her late 30s and the story of how she got her home loan is not different from the rest. She had o knock on the doors of about ten different banks before State Bank of India granted her a loan Rs 28 lakh, against her requirement of Rs 34 lakh.

She had a tough time getting a home loan. "It is not just about getting a home loan. It's about the amount of paper work involved and the lenders are suspicious about everything we do," she said. But things are changing for better for self-employed.

Over the last couple of years, banks have begun getting very serious about self-employed people. Almost every housing finance company has designed a home loan product for self-employed people. The interest rate may be a tad higher than the others, but at the end of it, you still have a scope to get a home loan. It is also important to note that banks shy away from offering fixed rate of interest to this segment of customers.

Following are certain important things that lenders consider while processing loans to self-employed:

1. IT returns

Income tax returns document is an important one when it comes to income verification. Lenders check last two years of tax returns statement to verify your income. Lenders take an average income of 24 months to validate your loan. Whether it has been a good or a bad year for your business, lenders do not look into it. But still we would suggest that apply at a time when your business is doing good.

2. Current fiscal profit and loss statement

Being self-employed comes with additional responsibility of managing your own accounts. It has to be done meticulously. While applying for a home loan, you have to give detailed statement of your current year's profit and loss statement.

3. Loan eligibility

So how do lenders assess loan eligibility? They take your net profit, consider the business use of your home, add depletion and depreciation and calculate your income, which will decide your loan eligibility.

4. Safe candidates

Self-employed candidates with higher downpayment on home buying, good savings and a good Cibil score are clear winners from a lender's perspective. Lenders also take applicants seriously if they have a steady income and some record to show that you have the willingness to repay.

Illustration: Uttam Ghosh/Rediff.com

The author is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India's first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.