Home Buying For The Self-Employed – Everything You Need To Know

A significant number of Indians are self-employed – be it as freelancers or as entrepreneurs who run their own businesses, stores, or small and medium scale industries. On the global index, India is ranked as having the second largest freelance workforce – right after the US and with over 15 million people working independently across multiple job sectors. In fact by 2020, freelancers are expected to comprise 50% of the workforce!

In a growth economy like India being a proud property owner is often a dream come true for the self-employed workforce. However, buying a home is not such a simple process for this segment as compared to the regular salaried class.

  • Why do freelancers and entrepreneurs find the home buying process difficult? Fluctuating income – Unlike the salaried class, self-employed people do not have a fixed income coming in month on month. This income variability and lack of stability makes financial institutions reluctant to lend to self-employed homebuyers.
  • Low credit scores – Entrepreneurs normally have lower credit scores as most of them have incurred significant debts to kick-start their businesses. This makes obtaining home loans a difficult proposition.
  • Jittery lenders – A spate of loan defaults in the past have made banks and other financial institutions more nervous and extremely reluctant to lend to potentially risky propositions.

All hope is not lost though! The trend is slowly taking a turn – with Non-Banking Financial Companies (NBFC) and other Housing Finance Companies (HFC) stepping in as lenders. They are easier to approach for loans and are less strict on documentation but often have higher rate of interest than the banks.

Before you dive into home buying though, here are a few questions you should ask yourself:

  1. Do you really want to invest in an immovable asset?

One of the top reasons that people go into self-employment is the additional freedom it affords. You can be mobile and choose to relocate to a place that will help you generate a higher income. So if you are unsure of staying put – you may want to consider renting.

  • Do you have a steady income pipeline to cover loans and home maintenance?

The home buying process not only entails the initial bulk payment and loan repayment – it also includes significant investments towards home furnishings, maintenance costs, and house taxes. If you do not foresee being able to invest the additional capital, now may not be the right time to buy a house.

In case you are an entrepreneur – banks and money lending institutes will also want to check your business financials and ensure it is moving in a positive direction – which means they want to ensure that you have a steady payment pipeline and therefore the loan payments will come in as per plan. Your business results will be scrutinized, and they will check your P&L for 2-3 years if not more. It is recommended that you apply for a loan when your business has been showing a positive trend over an extended period – so that it works in your favor.

  • What is your creditworthiness?

People with good credit standing, high CIBIL scores, a reasonable bank balance, and an ability to make a higher down payment are very high on the list for getting their loan requirements approved. Lenders also give preference to people who have shown an inclination to close on other payment commitments such as credit cards, automobile, and appliance loans – with zero defaults. So, before you apply for a loan – scrutinize your credit posture and ensure you do not stand a higher risk of rejection.

All money lending institutions will investigate your historic financial ‘state-of-affairs’ for 2 or maybe even up to 3 years. It would help greatly if you have paid taxes timely and have your tax returns at hand to prove your financial situation. It would also help to show a debt free asset or investment portfolio.

  • Do you have a Co-Applicant?

A co-applicant with a fixed income can make your application stronger, especially when your financials are below the expected levels. However, do keep in mind that the lender will examine your co-applicant’s financials and prospects – as diligently as they look at yours and with as much scrutiny. Whether you are a freelancer or an entrepreneur, the most important thing to remember when looking for your dream home is to keep your eyes on the goal and not to expect things to happen overnight. Remember – All good things come to people are willing to wait, make smart choices, plan well ahead and heed sound advice

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