If you are a self-employed individual running a healthy business, then maybe having adequate balances to cover your new home purchasing cost, particularly if your property is under construction and payments are disseminated out over a time period and not due for one shot. Owing to having adequate cash inflows and because of the tendency of Indians to avoid availing debt unless extremely necessary, self-employed are often averse to availing a home loan. However, availing of a home loan makes complete sense even if you hold adequate cash flows from the business. Here’s why; read on to find out.
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Lower fund cost
Home loans from lenders like the Bank of Baroda home loan, Bank of India, State Bank of India, ICICI Bank, HDFC Bank, Axis Bank, etc., are cheap in comparison to business loans. While the home loan interest rate today is nearly 8 per cent, a business loan may be available at anywhere between 12 – 20 per cent per annum. This definitely makes complete sense to opt for the funds that come with lower interest rates. Even if you do not hold any business loan, you can factor in the opportunity cost of opting for a self-financing option for a home buy. Note that you may be better off reinvesting your funds in your business as your business may have a higher return on investment than the home loan interest rate. So, opt for the home loan deal instead of using your own funds. You may use an online home loan EMI calculator to compute the effective EMI as per your preference and cash inflow. For instance, if you zero on the Bank of Baroda home loan, then you can use an online Bank of Baroda home loan EMI calculator to compute your preferred EMI amount.
Flexibility and overdraft facilities
Today banks provide innovative home loan choices like home loans with overdraft options. Whatever amount you park in your overdraft account linked with your account will not levy any interest. This endows you with great flexibility. You can also take up the whole home loan proceeds and park the same in overdraft, which means you will not be incurring interest costs, and at the same time, you will have an overdraft line ready, which you can use anytime in case of financial emergencies. This option is exceedingly prudent if you hold a seasonal business wherein you can park massive cash in your overdraft account when you hold excess finance. Also, according to Reserve Bank of India rules, lenders cannot levy any preclosure or prepayment penalties on the floating rate home loans, so you can select to close your loan whenever you want to with zero need to incur additional costs.
Self-employed and home loan – A brief insight
The majority of the workforce in India is self-employed. However, when it is about placing an application for a home loan, then self-employed individuals fail to do the same easily. For this, you as a self-employed must undergo several tiresome documentation processes than salaried individuals. A major concern for lenders and bankers is the stability and consistency of businesses owned by the self-employed. Against all odds, let’s have a look at how you, as a self-employed can get a home loan easily.
Two major categories of self-employed include –
Professionals – lawyers, architects, chartered accountants, doctors, etc.
Businesspersons or non-professionals – retailers as well as small-scale business owners.
What are the important parameters that you, as a self-employed individual, must factor into availing of a home loan?
Lenders of home loans are lenient in reference to documentation procedures with entrepreneurs and may change the conditions accordingly. Also, lenders demand to know the minimal number of years that you have stayed self-employed. Distinct banks set distinct age restrictions. Maximum loan repayment tenure equals 30 years, which allows you to select a minimal amount of equated monthly instalments (EMI) without impacting your standard of living.
Processing charges and rate of interest are higher for the self-employed as the documentation authentication procedure is lengthy as well as time-consuming. Other crucial parameters are your gross annual income, credit score, saving habits, liabilities, assets, number of dependents, etc.
What are the crucial documents that are required?
Self-employed individuals must provide more documents than salaried to avail of a home loan approval. Listed here are the important documents that are required to avail of home loan application approval.
∙ Property documents
∙ KYC documents involving residence, identity, and age proof
∙ Income tax returns – This is an important document that lenders consider seriously. You must submit the past 2 years’ tax returns wherein the bankers review your business viability.
∙ Statement of present year’s profit and loss.
∙ Past 6 to 12 months’ bank statement.
∙ Education qualification degrees and certificates.
∙ Co-applicant’s income details.
∙ Expertise practice certificate
∙ Tax deduction certificate or form 16
Entrepreneurs who have only started doing business may find it tough to get a home loan, as lenders require a minimum of 3 successful years of organisational operation.
Read on to consider, what are the important things you must keep in mind before you place an application for a home loan.
A home loan may be a huge burden if you do not factor in all the crucial details that go into the same. Here are some of the important things you must factor in before you apply for one.
Your borrowing capacity
You must not go for higher loan proceeds just because you draw a higher paycheck. Before you place an application for a home loan, you must carefully ensure to understand your borrowing potential. But the question is how you can figure out the loan proceeds that you are eligible for. It is very simple.
Firstly, you must ensure to keep in mind all the important expenses that you can incur on a monthly basis. These might involve your regular expenses for household, travel or kids’ fees, pending loan payments, utility bills, and miscellaneous expenses. Once you have mentioned all the important expenditures, the amount you are left with is what you can use for making your EMI payments on your home loan.
Credit score
You might not feel much about the importance of credit scores. However, it is an essential determinant of the rate of interest you are probably to get. For an excellent home loan interest rate, you will require to maintain a score equaling 750 and above.
