When it comes to applying for a home loan, there is a perception that it is harder for self-employed individuals but this is not quite true.
The main consideration for getting a bond is whether you can afford it.
Michael-Anne Abrahams, bond originator from MyProperty Home Loans says there may have been a time when being self-employed was a challenge if you wanted to apply for credit or a bond, but these days the process is far more sophisticated and equitable.
Abrahams's advice to self-employed people looking to apply for a bond is to approach the process methodically, and by doing the necessary “prep” work in terms of paperwork ahead of time.
Most financial institutions conduct a pre-qualification assessment as the first step in every application, whether you are employed or self-employed. This provides a clear understanding of affordability and improves your chances of approval. It also helps identify any potential red flags upfront, making the process smoother and more predictable.
She said the first step is to make sure you have all the relevant documents in order. These include a share certificate to verify ownership of the business, financial statement of two consecutive years signed by a registered auditor or a chartered accountant. If draft financial statements are provided, they must be verified against the bank statements to substantiate declared income and these must not be older than six months.
The institution will also need documents such as the latest income tax assessment and three months banks statements for the business and your personal account reflecting declared income.
“They might also need the accountant's letter which can serve as an effective tool to clarify the financial position. This letter can explain how the declared income is reflected in both the business’ financial statements and bank statements, whether in personal or business accounts,” Abrahams added.
A bond originator works on the buyer’s half, taking care of all the paperwork, and negotiating the best interest rate
— Michael-Anne Abrahams
She explained that it was highly beneficial to separate business and personal bank transactions.
“It simplifies financial tracking, ensures clarity in income verification, and enhances credibility in the eyes of lenders. This practice also allows for a smoother home loan application process, reducing potential delays caused by mixed transactions.
“By preparing these documents in advance and implementing sound financial management practices, self-employed individuals can strengthen their home loan applications and improve their chances of approval,” said Abrahams.
When it comes to tax, Abrahams said one had to make sure all tax returns are filed whether they are trading as a sole proprietor or business, as outstanding tax matters will hamper the outcome of a bond application.
It’s a good idea to work with a tax accountant if your affairs are complex or not up to date, as this may be the most efficient way to bring it to order in the right way.
It is also important to keep your credit record in check as it reflects your financial behaviour over time. It showcases your ability to manage and repay various credit facilities (loans/credit cards/retail accounts etc). Lenders use this report to assess your creditworthiness, making it a key factor in loan approvals and interest rates, especially home loans.
“The moment you start thinking about applying for a bond to purchase a property, is the time to do a credit check. Various credit bureaus, such as TransUnion and MyCreditCheck offer one free credit check per year, and this is a good starting point for assessing your creditworthiness. Each credit bureau has its own scoring system, and based on their specific method, they will indicate on your profile whether your score is considered bad, good, or excellent,” said Abrahams.
It is also important to work with a bond originator.
“A bond originator works on the buyer’s half, taking care of all the paperwork, and negotiating the best interest rate. Bond originators earn a fee from the bank for the business they bring in so the service is free to clients. With expert guidance, you can navigate the process with confidence and ease,” Abrahams said.
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