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A small businessman’s guide to home-ownership

A small businessman’s guide to home-ownership

You left your job to start your business because you wanted the freedom of being your own boss, tread the path which mostly are scared of. But now you’ve heard that being self-employed can make getting a home loan difficult. Does owning your own business mean you can’t own your own home?

Take heart–with home loans becoming easy to avail, gone are the days when a small businessman had a tough time availing a home loan. Let’s see how a small business owner can prepare himself so that he can smoothly achieve his big goal: homeownership.

Income & Repayment Capacity

Home loan providers always ensure borrowers will be able to repay their loans. Having a steady income is a vital part of that, which is why a big part of the home loan application process  involves verifying business health and income. For this purpose, usually lenders require 3 years’ Income Tax returns and at least 2 years’ audited Profit and Loss Account Statements and Balance Sheets of the business entity. But wait, here’s a good news – you can avail a home loan based on your banking only  with Hero Housing Finance! No requirement of ITR.

What does a small businessman aspire when seeking a home loan? – A higher loan eligibility that allows them to reduce down-payment and / or the option to reduce the EMI that lessens the monthly obligations. Keeping small businessmen at centre, we came up with Hero Home Loan Plus product , which allows you to avail home loan up to 30 years with a max age limit of up to 75 years. This leads to an increased loan eligibility by up to 40% or reduced EMI by up to 20%!

Profile of the Applicant

Before applying for a home loan, you should know the different parameters which a home loan  provider assesses while processing the loan application.

Preference to Younger Applicants: Age is an important factor which all the housing finance companies loan providers consider. The younger you are, the more time you have to repay your loan and longer the home loan tenure you can apply for. So if you have a successful business at a young age, getting a loan would be easier for you. Older applicants may need to make a larger down payment towards the home purchase. However, with Home Loan Plus, one can avail a maximum age limit of up to 75 years which means you can get a loan at 60 years, with a loan tenor of 15 years!

Number of dependants: The amount of disposable income is an important factor in assessing the applicant’s ability to repay the home loan. It is assumed that higher the number of dependants, lower is the applicant’s disposable income and vice versa

Educational qualifications: Some lenders use educational qualifications as a parameter for assessing the eligibility of the customer. Ritika, started her entrepreneurial journey after completing her accessory design course from a reputed design school. She had been successful in establishing her jewellery design business and within 2 years she had international orders to cater. Her bank approached her for a pre-approved loan which helped her realise her dream of home ownership. While educational qualification is good to have, we do not discount the business legacy and place equal or more weightage to the practical pace and potential of the business. At Hero, we believe in assessing your business’s health or your financial stability using innovative alternative models that make sure you get best possible eligibility.

Overall Financial Health

Along with the number of dependants, a home loan provider would like to know the overall financial position of the applicant. The lender assesses your existing debts such as credit card bills, personal loans, other home loan, etc. Lower your existing debt, greater are the chances of securing a home loan.  CIBIL score is an important factor that is considered by lenders at the time of offering a loan. It is a 3 digit number that ranges between 300 and 900 and it measures the ability of a borrower to repay the loan. A score nearer to 900 indicates a responsible borrower, thereby increasing the chances of getting the home loan on better terms.

To get a better picture of the financial health of a business owner, home loan providers closely scrutinise the business stability and its profitability. They would like to ascertain if the loan applicant has steady income from the business which would be sufficient to make the home loan repayments. Documentation related to business income like balance sheet, income tax returns etc. are needed for processing the loan. However, you can still apply in case you do not have proper income documents such as ITR and you will be assessed based on your banking transactions and balance.

Ensuring property sanctity & Seller Credibility

 It is advisable that prospective buyers should be aware of certain procedures and documentations while finalising their property. Consulting some lawyer who deals in property is always a good idea to conduct a legal due diligence of the property being considered for purchase. For a ready to move in property, the documents of the property include:

  • Title Document
  • Possession Certificate
  • Title search and report
  • Khata Certificate
  • Property Tax Receipt
  • Encumbrance Certificate
  • Occupancy Certificate
  • Agreement for Sale
  • No Objection Certificate
  • Building Plan Sanction by Statutory Authority
  • Power of Attorney ( if applicable)

For a property under construction, documents like Land Title of the Builder, Allotment Letter, and Builder Buyer Agreement needs to be verified. Also a seller CIBIL check can be done to ensure that the property is free from any mortgage.

The Bottom Line:

Paper work is the key to secure your dream home in case you are planning to opt for a home loan. However, given the recent scenario all lenders are speeding up their digitalisation efforts and aim to make the journey hassle free i.e. less documentation. COVID-19 has brought a lot of changes to the loan industry and one can expect those with basic minimum documentation such as  KYC, GST filings, consistent banking to get advantage at this time.



 

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