Self-employed? Fast track your bond application with this checklist

If you're ready to take advantage of the historically low-interest rate, here's what you'll need to have ready as a business owner applying for a bond. 

Even before the Covid-19 lockdown property market conditions were geared to favour buyers. And then the pandemic saw government lowering the interest rate to a 50-year low to ease the financial burden on consumers.

This is particularly great news for property buyers, particularly those looking to enter the market for the first time. What also helps is that the threshold on transfer duty was raised to R1 million earlier this year, which means the first R1 million of the value of the property is tax-free.

Despite the favourable conditions, the banks still have very stringent criteria that must be met when applying for a home loan. Self-employed people, including freelancers, contract workers, sole proprietors and small business owners, often report a struggle to get home and sometimes even believe they will never qualify for a home loan, which is not true.

Being organised and having your affairs in order is the first step, and already gives you a great advantage.

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.

Paperwork

Start by ensuring your paperwork is in order before you even consider applying for a bond, as it will save you a lot of time and hassle once the process is set in motion. 

Kay Geldenhuys, Head of Sales Fulfilment at Ooba, national bond originator, says requirements can vary according to the application and the loan amount requested, but self-employed buyers will generally need to provide the following:

• Comparative financials covering a trading or working period of the latest two years.
• A letter from their auditor confirming personal income.
• If their financials are more than six months old, the bank will need up-to-date signed management accounts.
• A cash-flow forecast for the ensuing 12 months.
• A personal statement of assets and liabilities.
• Personal and business bank statements.
• Their latest IT34, which is confirmation from SARS that their tax affairs are in order.
• Their company, closed corporation (CC) or trust statutory documents.
• The ID documents of all their business directors, members or trustees.
• Depending on the complexity of their application, it may also be useful to provide a short CV.

It’s prudent for self-employed buyers to ensure that their financial affairs are well in order before making an offer on a property as it will not only improve their chances of approval, it will also avert costly delays.

Once an offer to purchase has been made, time really becomes of the essence and mistakes are easily made in haste. Some errors are quickly remedied, but others can’t be fixed overnight, and this is when costly delays can occur.

Potential pitfalls for self-employed applicants are where their financial statements are outdated and they do not have up-to-date management accounts, where they have not kept their personal expenses separate from their business expenses, where their financial and tax affairs are not in order.

Tax affairs

Make sure all your tax affairs are in order. Outstanding tax returns, of whatever nature, will have a detrimental impact on the outcome of your home loan application.

Consider recruiting the services of a tax consultant or professional accountant if you need to as they can advise on how to best go out ensuring your tax is in order and creditworthiness is in good standing. 

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

Credit record

A clear credit record is the foundation of sound personal financial management, and one of the first things that will be scrutinised when you apply for a home loan. 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.

All South Africans are granted one free credit check a year so it is advisable to that before putting the application process into motion. There is no need to panic if your credit record is unfavourable as it is possible to restore it to good health. A certified debt counselor can assist with this.

Save for a deposit

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

Work with professionals

It is also highly advisable to use the services of a bond 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 institutions to help secure the best deal.