Millions of South Africans are classified as self-employed today, with GlobalData suggesting the number to be around five million. And whether those self-employed classify themselves as contractors, freelancers, sole proprietors or entrepreneurs, people who generate work for themselves (and others) should be applauded.
Yet, there exists an idea that when it comes to getting a loan, particularly a bond to buy a property, those who are self-employed are at a disadvantage.
“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,” says Michael-Anne Abrahams, bond originator from MyProperty Home Loans.
It is worth noting that the National Credit Act seeks to “promote a fair and non-discriminatory marketplace for access to consumer credit”, which includes access to home loan finance. Abrahams advice to self-employed persons 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.
Ensure your admin is in order
Making sure you have all the relevant documents in order is an important first step when applying for a bond. It’s a good idea to separate the personal from the professional, if relevant, and to ensure that no documentation is older than three months.
The documents you’re sure to need include:
- A playslip, or instead of that, a letter from your accountant or bookkeeper confirming your monthly income
- Financial statements indicating your income and expenditure over the past two years
- A 12-month cash-flow forecast – basically expected income and expenses
- A list of assets and liabilities
- Personal and business bank statements from the past six months
- Your latest ITA34 (see more below under ‘tax matters’)
- Company registration and/or statutory documents, if applicable
- ID document, including those of fellow business owner/s if applicable
Depending on the bank or the bond originator you work with, additional information may be needed, but starting with this list sets you off on a good start. Maintaining open communication with your bond originator ensures you’re always ready to provide additional information when needed.
Tax matters
It’s well known that we can be certain of two things in life: death and taxes. The latter is especially true when it comes to applying for a home if you’re self-employed. To this end, make sure all tax returns are filed, whether you are trading as a sole proprietor or a business, as outstanding tax matters will hamper the outcome of a bond application.
Most lenders (typically a bank) require submission of an ITA34 document, which is a summary of your assessment of the tax year, and basically indicates whether you owe the Receiver money or not. 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 them to order in the right way.
Check your credit record
A favourable credit record is a barometer of your financial well-being and a key determinant of your qualification to get a home loan. The moment you start thinking about applying for a bond to purchase a property is the time to do a credit check. Various organisations, including TransUnion and MyCreditCheck, offer free credit checks (subject to terms and conditions) that are a good starting point for assessing your creditworthiness.
In South Africa, a good credit score is between 650 and 669, while 670 and above is considered an excellent score. A poor credit score that has been improved will not be held against you when you apply for a bond. After all, it demonstrates your ability to manage debt in a consistent and focused way.
Work with a bond originator
Anybody looking to apply for a bond will do well to consider the services of a bond originator. Bond origination is a service that assists buyers in obtaining a bond at a favourable interest rate, and they typically work with all the major banks in the country.
A bond originator works on the buyer’s side, 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.
At MyProperty Home Loans, for example, you only need to complete one home loan application, which the team submits to all the major banks. The team’s goal is to get you the lowest interest rate on your home loan; even a 0.5% difference in the interest could save you thousands over a 15- or 20-year loan period, so the lowest possible interest rate does matter.
There is no reason for those who are self-employed to think that they won’t get a home loan. Take care to get your paperwork, credit score, and tax affairs in order, and work with professionals, and it should all be (mostly) smooth sailing.
