When it comes to giving out loans, financial institutions are going to choose borrowers that they are sure would pay off the debt without any delays. Now, since a home loan is a debt that usually amounts to a huge sum, lenders have to be careful while approving loan applications. In this regard, it is much easier for a salaried individual to get a lender’s approval for a home loan as compared to a self-employed individual.
This is because salaried individuals are earning a steady monthly income, which makes it more likely for them to clear the home loan’s EMIs without any difficulty. However, since a business’s profits can fluctuate, financial institutions can be apprehensive of approving loan applications from businessmen. However, this does not mean self-employed individuals cannot get home loans to purchase houses.
If you are a businessman looking to get a home loan, take a look at a few effective tips that can help in improving your housing loan eligibility:
- Improve your credit score
This is one of the most important factors that lenders look at while deciding whether to approve or reject a loan application. By looking at an applicant’s credit score, financial institutions can understand how previous debts have been handled. This is why it is advisable to maintain a good credit score (above 750). This can be done by paying off all EMIs and bills on time without any defaults.
- Clear off any outstanding debt
Lenders also check a borrower’s debt-to-income ratio while evaluating their loan application. This ratio is a percentage of the monthly EMIs you are paying against your monthly income. By studying this ratio, the lender understands your capacity of taking on another loan. If the amount you are left with after all the monthly obligations are cleared is not much, it might get difficult to accommodate a home loan’s EMIs. This is why it is better to clear any outstanding debt before you apply for home loan.
- Make a higher down payment
Lenders can finance up to 75-90% of the property value, depending on the amount you are willing to put down as the down payment. If you are looking to get a higher loan amount, it is advisable to make a higher down payment. This will help in giving room to the lender for offering a higher loan amount. This is because making a higher down payment reduces the lender’s risk.
- Maintain profits for at least 2 years
Financial institutions require self-employed individuals to be working in the same business for 3-5 years. Now, this might differ from lender to lender, so make sure to inquire about this before applying for a home loan. Showing a return of profits for the past 2 years can help improve your home loan eligibility.
So, keep these tips in mind to improve your eligibility for a home loan. Also, make sure to use a home loan calculator to be clear about the loan’s EMIs beforehand.