Are You Self Employed?

16 JUNE, 2021

Getting a home loan as a self-employed individual may seem complex, as you may not have a fixed monthly income. However, nowadays lenders easily approve home loan applications of self-employed individuals. But how can you ensure that your home loan gets accepted without much trouble?

1. Ensure you apply with a co-applicant

   You can successfully get your home loan application approved by adding a co-applicant to the loan. This is because your loan eligibility increases when two individuals share the burden of repayment. The lender can then be rest assured about home loan repayment even if you are self-employed. Including a co-borrower in your loan (especially someone with a reliable track record such as a good credit score and repayment history) can help boost your loan eligibility. However, make sure you meet the other eligibility criteria set by the lender.

2. Maintain a good credit score

   Lenders evaluate your credit score and past repayment history before lending funds to you. Your credit score plays an instrumental role in convincing the bank and getting your home loan application approved. Though some lenders may accept self-employed individuals with lower credit score, it can mean a higher interest rate. Therefore, you must maintain a good credit score for loan approval. Apart from this, the bank may also consider any of your past loans and pending dues to assess your home loan repayment ability.

3. Include a guarantor for the home loan

   Adding a guarantor for your loan is another option to ensure your home loan application is accepted. A guarantor can be brought in to increase your loan eligibility. But they must fulfil the lender’s eligibility criteria for home loan approval. Including a guarantor reduces some of the risk for a bank while lending you a huge sum. In case you aren’t able to repay the home loan in the future, the lender can approach the guarantor for loan recovery.

Eligibility Criteria for Self-Employed Individuals

• Profile of the applicant

1. Age - The age of a self-employed home loan applicant should be between 18 and 65 years
2. Educational qualification - Many banks need the applicant to at least be a graduate.
3. Dependents - As more number of dependents can mean a lower amount of disposable income, lenders might also take the applicant’s dependents into account. However, this can vary from one lender to another.

• Financial position

Your overall financial condition decides your home loan repayment ability. Therefore, the lender may consider existing loans, credit card dues, etc. to assess your financial position.

• Income or Profitability of your business

As you are self-employed, the income you generate is a vital aspect for your home loan application. Thus, the lender shall estimate your income or the profitability of your business along with the number of successful years in the business or profession.

As a self-employed individual, you should submit accurate documents like audited balance sheets and profit & loss accounts to give the lender a fair idea about his business performance. With these factors in mind, you can get your home loan application approved without any hassle. Ensure to check on your eligibility before applying with various lenders to avoid home loan rejections.

Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.