Many self-employed persons or entrepreneurs are engaged in businesses which flourish for a few months and do not do as well for the remaining. Hence, such business owners often have an inconsistent income. Since it is important for banks to be convinced that the borrower is capable of paying EMIs on time, inconsistent income can become a point of conflict while applying for loans.

There are a few other reasons which may also make banks feel hesitant regarding self-employed applicants. Many business owners do not have registered businesses and do not maintain their books. This lack of book-keeping can prove to be a major deterrent while applying for a home loan.

Inconsistent tax returns is also a common occurrence that negatively impacts the credibility of borrowers.

Hence, self-employed individuals must carefully go through all the requirements of a home loan. Along with their identity proof, one would also need to submit their income proofs, bank statements, property documents, a copy of Income Tax Return (ITR) filing of the last 3 years, bank statements of the last two years, a copy of the shop/establishment license, and a copy of the partnership deed (if applicable). The computation of income document and a copy of the balance sheet and profit and loss accounts of the business for the last three years are also necessary pre-requisites. These documents must be duly attested by a chartered accountant.

Following are some tips that may help in the sanction of the loan application:

• It is advisable to submit ITR filings of more than two years. Not only does this establish the credibility of the applicant, but also acts as a proof of the growth in business.
• Banks want to assess the applicant's ability to pay regular EMIs. For which, it is important that the applicants submit a detailed statement of their business' profit and loss, as attested by a chartered accountant.
• Banks must be able to understand the kind of business one is engaged in, and its potential. Hence, it would be a good idea to submit to the bank a brief business profile on the firm's letterhead.
• One must apply for a loan only when they have enough money to make a substantial down payment. Higher down payment, proof of savings and a good credit score are three important factors that influence the bank's decision.
• One must consider applying for a loan to the bank where they maintain their accounts. Since the bank would already have an idea about their cash flows, chances of securing a loan are most likely to increase.