It has always been difficult for the self-employed to apply for a home loan and to meet the home loan eligibility. Because even though their average income may be satisfactory, lenders prefer job stability. In the case of a self-employed person, the income is based on a project-by-project basis, making it inconsistent and patchy. Sadly, most lenders reject home loans for freelancers and contractors without a proper three-year history of income and large deposits. So if your income fluctuates monthly, lenders may be reluctant to lend to you.
Tips to get a home loan as a freelancer
Tip 1: Make a bigger down payment deposit.
According to lenders providing home loans in Hyderabad, the higher the amount you put down as a deposit, the less likely you are to leave in times of financial distress. If you intend to prove that you are less of a risk taker, one of the best steps you can take as a freelancer is to start saving for a deposit. Lenders will find your application easier to accept once they see that you’ve saved up a down payment on your home and show you’re serious. In addition, it will increase your chances and lower your monthly payments.
Tip 2: Organize your papers
Freelancing is very different from full-time work, especially when handling paperwork. Your company takes care of your salary, tax returns, etc., by uploading everything to a portal in a classic office job. However, if you are self-employed, you are responsible for ensuring that your accounts are up to date and have been prepared by a professional accountant. Before you apply for a home loan, prepare at least two years of accounts that include your income for previous years, balance sheets, profit and loss statements, and other documents to verify your income. A snapshot of your annual income can be favorable because your income fluctuates monthly.
Home loan documents for the self-employed –
The following list of home loan documents for the self-employed will come in handy when applying for a home loan:
- Address Proof – Aadhar Card, Passport, Driving License, Telephone Bill, Ration Card, Voter Card or any other certificate from statutory authority,
- Proof of age – PAN card, passport or any other relevant certificate from a statutory authority
- Proof of income – proof of business existence, tax return history of last three years, balance sheets and bank account statement, Salary slip of the last three months
- Property documents – a copy of the real estate purchase contract
- Educational proof – proof of educational qualification
Tip 3: Increase your credit profile
Not maintaining a good credit history can come back to haunt you later. Lenders evaluate your credit profile and check your score when deciding on your home loan eligibility.
The best score shows your ability to repay the loan, not just as a freelancer. Each lender providing home loans in Hyderabad has different criteria for their credit score, but almost all are looking for a score of at least 650. However, not all lenders run after the credit score, few of them can offer a home loan with a lower credit score, but it will come with relatively high-interest rates.
Tip 4: Freelance for at least three years before applying.
When no one checks your work and income, you have to prove that you have some work history under your thumb. So there are two ways you can apply; one is when you have at least 2-3 years of experience or when interest rates are low, and you can’t wait. The reason for employment history is that lenders can see that you can maintain your income throughout the year and afford the monthly EMIs. This is why it is recommended that you have two to three full years of self-employment before lenders will consider you.
Before applying for a home loan as a freelancer, make sure all your documents are up to date and ready, especially your income tax returns and business books. A good time to apply for a home loan is when you are doing well in your business, have no significant debts, and have a credit score of 650+. You can get a paid co-applicant to increase your chances and meet your home loan eligibility.