Self-employed? Being organised is key to securing a home loan

In South Africa self employment, which includes freelancers, contract workers, sole proprietors and small business owners, represent some 10% of the workforce, according to World Bank statistics . 

In the past self-employment may have been a hindrance in applying for a home loan, but fortunately this is no longer the case. In fact, the National Credit Act seeks to "promote a fair and non-discriminatory marketplace for access to consumer credit", which includes responsible access to home loan finance. 

"The key to securing a bond is to ensure you're organised about the whole process," says Steven van Rooyen, Principal at Leapfrog Milnerton. Lenders are primarily interested in seeing a consistent stream of income and sufficient disposable income to cover the bond payments. "With these two requirements in place, self-employment shouldn't be an issue," Swain explains. 

In order to simplify the process and improve your chances of securing the bond, Van Rooyen recommends being organised about the application process by taking note of the points below. 

Get your paperwork in order 

Save yourself time, hassle and to-ing and fro-ing by getting your documentation in order before even applying. The information typically required by the bank includes the following: 

• A letter from a your accountant or bookkeeper 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

Note that different institutions may have different requirements but the list above is a good starting point. 

Tick off the taxes 

Outstanding tax returns, whether in your personal capacity or that of your business, will hamper the outcome of your bond application so make sure all returns are up to date before applying. 

"Most institutions require submission of your IT34 document, which indicates whether you owe SARS money, so there is no way to sidestep this," Van Rooyen says. Speak to a professional accountant or tax consultant to help you get your tax affairs in order as quickly and efficiently as possible  

Set the (credit) record straight 

A healthy credit score is an essential component of your personal financial wellbeing, and will be considered when you apply for a home loan. 

South Africans are entitled to one free credit check a year so make use of this service to assess where you're at before submitting your bond application. 

Van Rooyen explains that bad credit is usually the result of consistently defaulting on payments and loans, unpaid judgements or filing for bankruptcy. The good news is that unfavourable credit records can be restored, which will then improve your chances of being granted a home loan. 

"Consider working with a certified debt counsellor if you are serious about restoring your credit record. The services of a debt counsellor include negotiating lower fees and interest rates on your credit and/or extended payment terms to help you service the debt in a consistent and manageable way," Van Rooyen says. 

Three quick tips 

Last but not least, Van Rooyen has a further three tips for improving your chances:

Save for a deposit: Having a deposit to put towards the home loan works to show that you're both financially responsible (and serious about getting a bond) and very likely to honour the monthly repayments. A deposit may also help to secure a more favourable interest rate. 

Separate business and personal: It's good to get into the habit of keeping your personal and professional finances separate and is likely to stand you in good stead when applying for a bond. 

Use a bond originator: Bond originators assist with home loan applications by applying to various institutions on your behalf and working to secure the best deal. They also take care of all the paperwork, which generally increases your chance of success. What's more, the service is free to the applicant as the bond originator is paid by the bank (for the service of recruiting the client), so definitely worth considering if you're in the market for a home loan.