Self-Employed And Seeking A Home Loan? Mind These
If you are an entrepreneur, you are your own boss. You are independent and do your dream work but it also comes with many challenges. One of them is getting a loan, especially if you are buying a home. Many self-employed people do not qualify for a home loan because they are unable to clear the lengthy due diligence a bank conducts to understand the person's eligibility. Here are some challenges that a self-employed person faces when taking a home loan:
Seasonal/inconsistent income
One of the key reasons a lender might not approve a home loan for a self-employed individual is their seasonal or inconsistent income. Many self-employed are in a business that gives them income for a few months and few months of no business. While some have inconsistent income every month, depending how the business has performed that month. This keeps banks at bay as they see the loan seeker’s capability of paying a fixed equated monthly instalment (EMI) . In case of self-employed it is inconsistent.
In such a case, a bank approves of the ones who can give a large amount in down payment ensuring their EMI is small.
No book-keeping
Many self-employed people do not have registered businesses and hence, do not keep books. A registered business, with all the book-keeping, including tax fillings of past few years is what banks require to ensure that you are capable of paying the monthly instalments. The banks may ignore a bad year or two, however, no books at all can be a deterrent.
Keep the books, all the profits and losses over the years are important, in case, you want to get a home loan for your property. You could also hire an accountant to do that job for you, which makes it seamless for a lender to do a due diligence before sanctioning your home loan request.
Inconsistent tax filing
Many self-employed individuals have inconsistent tax filing. It can be a challenge in later stages when these individuals want to take a home loan. Your tax-paying capability talks a lot about your income.
Banks check your tax returns statements of past two years to verify income.
Make sure you are consistently paying your tax and keeping the required forms intact. Present them to the bank to make the home-loan-approval process smooth.