Being free from the shackles of 9-5 jobs and starting something of your own is an achievement in itself. You are your own boss and not accountable to someone else. However, being self-employed also means that your earnings are fluctuating and you do not have fixed income reaching your bank account every month. In such a situation, it could be challenging to get your home loan approved or even repay the loan comfortably.
Worry not, for there are ways through which you can ensure that you do not face any hassle while availing a home loan.
Here are a few things that you must keep in mind as a self-employed home buyer.
- Pay a larger down payment
It would be easier for you to get your loan application approved by paying a large down payment. When you pay a large down payment, the lenders are assured that you are a serious buyer. It also reduces the risk for them as you finance a large part of the house yourself. Though lenders require you to pay at least 20% of the house price as a down payment, you can pay a higher amount. A larger down payment reduces your home loan EMIs too.
- Clear all your debts
Having existing debts could be a red flag if you do not have a consistent monthly payment. It would be better to clear all your debts and credit card dues. If you have multiple debts, you can avail a consolidated loan to pay them off.
- Furnish adequate documents
The lender asks for documents like a copy of the bank statement, income tax returns and the latest profit and loss account and balance sheet, from a self-employed applicant. These documents help them determine your income and verify if it is sufficient for loan repayment. Before filling the application form, keep all the updated documents required for home loan handy. Ensure that they are in order and as per the lender’s requirement.
- Check credit report
Your credit report is a crucial document that helps lenders check your creditworthiness. It has all the details of your debts, which reflect in your credit score. Before you apply for home loans, check your credit score and scrutinize your credit report. Ensure that there are no discrepancies in it. If you find any, request the bureau to rectify it. In addition, experts recommend preserving your old credit cards and letting old repaid debts stay on your credit report. It reflects your creditworthiness towards loan repayments.
- Maintain a low debt to income ratio
The debt to income ratio is your ability to manage debt repayments. It is calculated by dividing your total debt obligation like credit card payments and loans by your net monthly income. To assure the lender that you have enough income to repay the loan, you should maintain a low debt to income ratio. Usually, a debt to income ratio of 40% or less is preferred by the lenders.
If you receive variable income every month, it could be challenging to convince the lender of your repayment capacity. However, using these tips can help you qualify for the loan and even get the lowest home loan interest rates.