Salaried individuals are preferred housing loan customers for most lenders, as it is easy toperceive their creditworthiness. Their regular and reliable source of income makes their cash flows, expenses and savings easier to gauge. Hence, most banks and housing finance companies (HFCs) offer them home loans at preferential pricing when compared to the self-employed segment.
However, with the growth of the home loan industry, more and more specialized housing finance companies have emerged which look favorably towards the non-salaried and self-employed class of borrowers—especially in the affordable housing segment.
Non-salaried borrowers may incur slightly higher interest rates than their salaried counterparts. However, with all-time low mortgage rates, stable property prices and government-led incentives have all increased housing affordability, making it a very good time for anyone looking to buy a house. HFCs that specialize in home loans for non-salaried or self-employed individuals understand that niche and have advanced underwriting methodology and thus non-salaried individuals have a better chance of loan approvals from them.
First-time home buyers or new to credit customers are also a segment where demand for credit is high, but banks generally shy away from lending due to lack of credit history. Thus, HFCs within this niche are your best bet if you’re a first-time home buyer.
As the Pradhan Mantri Awas Yojana (Urban) approaches its March 31 deadline, it is also advisable for home-buyers to apply for a loan while they can still avail subsidies under the scheme. Here’s what the self-employed individuals should know before taking their home loan.
Who Falls Under the Non-salaried Category?
Non-salaried or self-employed people are those who do not get a fixed salary at the end of the month. Broadly, there are two categories of self-employed or non-salaried people.
The first category comprises professionals like lawyers, chartered accountants, doctors, and architects – those who have a professional qualification and practice on their own to earn money. The second category includes traders, contractors, painters, insurance agents, and shop owners—those who may not have a professional qualification but have their own business.
Both groups of self-employed people are eligible for home loans from housing finance companies. Normally, interest rates are slightly higher for self-employed individuals compared with salaried individuals, due to cash flow uncertainty.
Who in the Non-salaried Can Qualify For a Home Loan?
A person applying for a home loan needs to be at least 21 years of age and should be able to furnish details of their liabilities, assets and repayment history.
For non-salaried people to be eligible for a home loan, their business should have been in operation for at least three years. Further, they should have proof of income in the form of income tax statements, PAN and TAN card details, bank statements, etc. for the last two years, certified by a chartered accountant.
They may also need to provide other financial information such as both personal and business bank statements, goods and services tax filings, and proof of tax deducted at source (TDS).
What Documents are Required to Apply for a Home Loan?
In addition to the basic documents required for applying for a housing loan, other varied documents could be needed, based on the nature of self-employment. This usually includes personal financial information; and documents showcasing that their business is profitable, and has a proven ability to generate regular income.
Qualified professional
Qualified professionals such as doctors, lawyers or architects have better chances of securing a home loan as they are easily employable. Housing financers usually check the professionals’ client lists, sources of income, income tax returns of the last three years and credit history. Along with these, borrowers will also need to submit their practice certificate and registration certificate for deduction of professional tax.
Proprietary owner
The owner of a proprietary concern must have their registration certificate under the Shop and Establishment Act and Factories Act, along with tax returns and income statements. They will also need to submit additional documents like balance sheets and credit history.
Partner in a firm
If the borrower has a partnership firm, they must have an updated deed of partnership and identity proof of the partners, in addition to all the above-mentioned documents.
Factors To Consider for Home Loans to Non-Salaried Individuals
Age
A non-salaried person of the age of 21 to 65 is eligible to get a home loan. Some lenders even consider applicants up to the age of 70 years, depending upon the clarity of the succession plan and valid proof of income generation. However, younger the applicant, better are the chances of the home loan application being approved as such loans are usually for a longer tenure.
Credit history
Credit history is an indication of the applicant’s financial and repayment history. Home finance companies usually check whether the applicants have defaulted on any loans, credit or repayments previously. Ideally, instances of default or delayed EMIs (equated monthly installments) in the past, reduce the chances of getting a loan or could lead to higher interest rates.
Debt and liabilities
Housing financers usually track any existing loans that the borrower may be servicing, before giving a green light to the housing loan application. In case a borrower has multiple ongoing loans, including personal loans and credit cards, it could impact their chances of getting a home loan of the desired amount.
Therefore, it is advisable to clear existing debts before applying for a home loan. This is especially relevant for a non-salaried borrower as having multiple loans can raise concerns regarding their future repayment ability due to the element of uncertainty in income generation.
Credit score
A credit score is a statistical analysis of a person’s creditworthiness, based on factors such as credit history, current financials and spending activity, among others. Higher the score, the better a borrower looks to potential lenders owing to a higher probability of them repaying the loan in a timely manner. To get their loan application to be considered favorably, potential borrowers should look to keep a high credit score by means such as servicing existing loans, maintaining a low credit card outstanding and paying one’s bills on time.
Co-applicants
Adding a co-applicant can help increase your home loan eligibility, in addition to getting better interest rates and higher loan amounts. This is especially true in the case of an employed spouse or co-applicant, or women co-applicants as a lot of housing finance companies offer better rates and additional benefits to women borrowers to encourage them to buy homes or become co-owners of the houses. Even government programs provide incentives to women home buyers.
Down payment
Housing loan applicants that make a high down payment, have a higher chance of getting a loan. This is because the size of the home loan will be less compared to that for a person who makes a smaller down payment. It also increases the chances of your home loan being approved as it increases the lender’s confidence in your ability to repay the loan.
Property value
When applying for a home loan all the original documents pertaining to the property need to be submitted to the lender. This is because the property acts as collateral for the home loan, and lack of proper documentation or legal issues pertaining to the property, could reduce the chances of the home loan application being approved.
How Long Can a Home Loan Be For?
The loan tenure for non-salaried individuals is dependent on your current age. Most lenders would offer you a tenor of 20-25 years. However, some lenders may restrict it to 15 years as well. Potential borrowers should study which home loan financers are offering what tenure of loans and other their loan application requirements.
Securing the loan
While it is relatively easier for salaried people to secure home loans, today there are several housing finance companies that cater to the self-employed segment and new to credit customers as well. As long as borrowers are able to furnish their financial information and that of their business, getting the application approved can be a reality.
To improve the chances of getting a home loan, non-salaried people are advised to make as high a down payment as possible, show substantial savings, and have a good credit score. It is important to build an income profile in a manner that makes the lender confident of their ability to repay the loans.
