News / Tue Mar 2022

Self Employed And Battling To Buy A Home?


WORDS Kelly Hall

SELF EMPLOYED AND BATTLING TO BUY A HOME? READ THIS ARTICLE

Self-employed and battling with bond approval? Despite affordability and good credit rating? This article is for you. Listed below are ways to increase your chances of bond approval as a self-employed individual: 

Consult a bond originator: 

The preparation of documentation for a home loan application can be tedious. If you have a time frame in which you would like to buy, consulting earlier with a bond originator would help give you enough time to prepare and possibly get pre-approved before making your purchase. The bond originator will advise you accordingly throughout the process regarding what you should do in order to increase the chances of bond approval. This could sometimes include ensuring your accounting is in order, or even starting to explore an additional income stream for your business. The assistance of a bond originator will also make the process seem less daunting.

Documentation required: 

1. Company Financial Statements – required by the banks to verify declared earnings and in order to see the solvency of the business. These can only be prepared and issued by your accountant.

2. A tax assessment for the past three years - Just as a general employed person receives a monthly payslip, a self-employed individual is also required to confirm monthly earnings and tax compliance. This is known as personal Ita34s and is generated by SARS. This is where having a tax consultant is beneficial as they would know how and where to obtain this documentation. 

3. Personal and business bank statements and a cash-flow summary for the past six months - The bank statements are used to verify declared earnings and expenses, and the management accounts will be required if the financials are older than three months.

4. A letter from the accountant - Confirmation of monthly withdrawals as well as any personal expenses paid by the company on the applicant’s behalf.

5. Income statement - The banks will request a personal balance sheet, which incorporates personal assets and liabilities and income and expenditure. Self-employed applicants may have more than one source of income.

Employ the services of a good accountant and tax consultant: 

It is of vital importance that operational expenses and earnings are recorded on a monthly basis. The banks need to be able to verify this against tax returns and bank statements. Finance professionals are not only trained to do this but they can also give strategic advice on your finances regarding the purchase of a property. Rather spend a little extra on these services, it will be very beneficial in the long run. A well known saying in the industry is: “Don’t look at the price of the shovel when you’re busy digging for gold.”

Applying for a joint homeloan: 

In a case where there is a joint application with a spouse, the self-employed spouse would need to submit as specified above. The employed spouse will need to submit three months’ payslips and three months’ bank statements. Should the individual work for commission or commission makes up part of their earnings, the banks require six months’ pay slips and six months’ bank statements. 

Deposit: 

A deposit will definitely assist in a preferential outcome. The banks may request a 20% deposit if the application is in the name of a legal entity and a 10% deposit if it’s in the applicant’s personal name. 

Apply for your home loan through a bond originator: 

If you’re self-employed, you have a much better chance of bond approval if you apply through a bond originator. On average, 42% of applications that are declined by one bank are approved by another. This is because the bond originator submits the application to multiple banks, therefore opening up the applicant’s chances. The services of a bond originator are at no charge to the client as the bank that grants the loan pays the originator for administrating the application.


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