Self-employed and looking for a bond?
Freelancers, contract workers, sole proprietors and small business owners often fear that the freedom associated with their professions put them at a disadvantage when it comes to applying for a home loan.
"Self-employed individuals often mistakenly believe that they won't qualify for a bond as their income is often sporadic and unsecured, and then won't meet the stringent criteria imposed by financial institutions," Silvana Dos Reis Marques, Manager at Leapfrog Pretoria East, explains.
Affordability remains the main criteria against which an individual's suitability for a loan is measured. "If you can demonstrate that you can comfortably afford the monthly bond repayments, your likelihood for qualifying for a home loan is much higher. In this case it's up to the individual to have the documentation that an employer is often responsible for, in order.
The following documents will be requested by the financial institution whom you're applying to, so be sure to have them in order:
- A letter from your accountant confirming your personal monthly income
- Financials covering your income and expenditure covering the last two years of working or trading
- A 12-month cash-flow forecast
- A list of assets and liabilities
- Personal and business bank statements going back at least six months
- Your latest IT34, which serves as confirmation from SARS that your taxes are in order
- Company registration and/or statutory documents, if applicable
- ID documents of fellow business directors, if applicable
Make sure your tax affairs are 100% in order before even applying for a loan.
"Tax returns can be daunting if you're managing it yourself, so considers using a tax consultant or professional accountant to help you get your affair in order. Even if you need to do back payments or settle penalties, make sure you have the green lights from SARS before committing to a property loan," Dos Reis Marques advises.
For the credit
Your credit record will be thoroughly scrutinized when you apply for a home loan so make sure you don't have any bad debt against your name. "It's a good idea to run your own credit check and it's fairly easy to do as all South Africans are entitled to one free credit check a year," Dos Reis Marques says.
And there's no need to despair if you do find that there are problems with your credit record as there are ways to restore your credit to good health. "In the event of an unfavourable credit record, consider seeking expert advice on the most efficient way to settle bad debt," Dos Reis Marques recommends.
Somewhat ironically, it sometimes helps to have "small" credit in order to qualify for "big" credit. Dos Reis Marques adds: "To demonstrate your ability to manage credit, you could consider opening a store account and using it a couple of time, but make sure you're disciplined about paying it off in full and on time."
Three more tips that could help
Save for a deposit: In trying to secure a loan it is usually a big help if you can put down a deposit. A deposit speaks to a sense of financial responsibility, which the lender is likely to see as a positive trait.
Keep it professional: Keep your personal and professional finances and admin separate. It helps to show you're serious about both your profession and your money.
Work with a professional: Whether it's a tax consultant, accountant or trusted property advisor you need to help you get your affairs in order, working with an expert usually helps things move along faster, and typically saves you time and money in the long run.