Know all About Home Loan Products For Self-Employed

Posted by Rudra Raghavan on January 22nd, 2020

It is a common belief that lenders offer home loan products for self-employed people and salaried people.

Home loan products

Banks and housing finance firms offer two to three specific types of housing loan products:

• Home loan -Floating rate
• Home loan- Fixed rate
• Home loans with flexible requirements and flexible options for repayment

The basic floating and fixed-rate home loans that are extended to salaried individuals are also extended to self-employed.

However, a self-employed person's salary and risk profile are different from a salaried person. This is what lenders understand.

So, if you are self-employed or a specialist with a private practice, your home loan application gets assessed  with a different viewpoint.

Application of salaried vs self-employed

Whether you are a small shop owner or an enterpreneur, the business depends on your earnings. You have a regular income every month if the business is successful. If the company is volatile or susceptible to failure, the revenue will not be stable.

This has a direct impact on how well you can repay your financial obligations. Therefore, lenders make sure they assess your revenue, properties, and other liabilities before sanctioning home loan in India.

Let’s take a look at some differences between the application of self-employed and home loan application of a salaried person.

Income calculation

There is no rule while calculating the salary of a salaried individual who applies for a home loan. Normally one glance at bank statements and income tax returns provides all the facts and evidence. But in the case of those who are self-employed, calculating income is not that easy. Here are some examples of self-employed applicants:

• A shop owner who earns in cash and has receipts
• A doctor who earns professional fees in cash and does not have receipts
• Big business companies with multiple partners sharing the income and profit
• A consultant who earns income for their services and claims for the expenses
• Taxi or rickshaw drivers who have cash flow and have no income proof

For all these different cases, banks and housing finance companies use different means to calculate and predict wages. Lenders take multiplier number for certain occupations such as physicians and use it to calculate annual income. Each have their fixed profit percentage and multiplier. The numbers are based on internal models of risk assessment. Since income can be inconsistent, lenders even verify total yearly income, subject to a minimum number of deposits and transactions that took place.

Documentation

It is simple and clear cut for salaried people. You get the required information in Form 16, Form 16 A, and bank statements. But with self-employed documentation it is unclear. Each company faces different set of challenges.

Most of the time, income tax returns and bank statements do not present all the income and liabilities. Sometimes income documents may be unavailable. In fact, whether you are salaried or self-employed, if you do not have documents, you still are eligible for a house loan. However, lenders propose certain products for such applicants. The interest rate for these products is significantly higher.

Gone are the days when it was tricky to apply for a home loan in India for a self-employed individual or professional.