How to go about a home loan if you're self employed

Property is a big investment. In fact, it’s one of the most significant that many people will undertake in their lifetime. Applying for a home loan is almost always a stressful experience – not the actual process, but rather the fear of not meeting the stringent criteria – but needn’t be if you’re organised and your paperwork is up-to-date, particularly if you’re self employed.

Freelancers, contract workers, sole proprietors and small business owners have no reason to believe – or accept – that they’ll never own a property. “Being organised and having your affairs in order is the first step, and already gives you a great advantage,” says Steven van Rooyen, Principal at Leapfrog Milnerton.

In order to qualify for a home loan you need to demonstrate that you can comfortably afford the monthly bond repayments, which is easier if certain matters are clear.

Paper trail

There are a number of documents that need to be submitted with your home loan application. Taking the time to ensure they’re all accurate, up to date and in order can save you a lot of hassles – and potential heartache – further down the line.

Typically, the following documents will be requested by the financial institution whom you’re applying to:

• A letter from a 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

Death and taxes

Nobody likes taxes, but as the old adage goes, they are as certain as death. Ensuring your tax returns and general affairs are in order can simplify a home loan application

“You’re going to have great difficulty having your home loan application granted if you have taxes, of whatever nature, outstanding. Seek the help of a tax consultant or professional accountant to help you with this if needs be,” Van Rooyen recommends.

Tax evasion or avoidance will catch up with you at some point, so best to pay the penalties and clear your record and restore your creditworthiness.

To your credit

“A clear credit record is one of the main building blocks of sound personal financial management, and one of the first things that will be scrutinised when you apply for a home loan,” Van Rooyen explains.

Bad credit, which typically results from defaulting on payments and loans, filing bankruptcy and unpaid judgements, decreases your chances of having your credit application approved.

Consider running your own credit check before you even apply for a home loan. All South Africans are granted one free credit check a year so it is advisable to that before putting the application process into motion.

If you do have an unfavourable credit record don’t despair because it is possible to restore your record, though its best to seek expert advice on how to do this in the most efficient way.

In order to qualify for big credit it is sometimes, ironically, useful to have small credit. For this you could open a store account and use it a couple of times, but make sure you pay it off in full and on time.

Dig deep for a deposit

Having a deposit to put towards your bond can be of great help in securing a bond. Showing that you have substantial savings demonstrates that you’re financially responsible and thus likely to honour the bond repayments on a monthly basis.

“Saving for a deposit isn’t always easy but it certainly helps to be clear about the goal amount, and the difference this will make to your application,” Van Rooyen elaborates.

Personal vs professional

This is always a good idea and not just when it comes to getting your paperwork in order, but applies to personal financial management in general: Keep your personal and professional finances and admin separate.

Tax law does allow for certain personal expenses that results from running a business to be claimed as such, rather than as part of a taxable salary, this could appear as inflating your income, which could count against you.

Don’t go it alone

“Credit, finance and admin in general can be tricky business, so rather than struggle on along, recruit the help of the experts – be is a tax consultant, accountant or trusted property advisor,” Van Rooyen emphasises.

It is also highly advisable to use the services of a mortgage originator as this increases your chances of success. These consultants assist with the home loan application process and are well versed in the administrative intricacies. They will forward your application to various financial institution to help secure the best deal.

Property can be a great investment but never one that should be entered into lightly. Make sure you understand the ins and outs of the investment before signing on the dotted line.