Of those interviewed this year for Old Mutual’s latest Savings & Investment Monitor, just 6% earn R40 000 or more a month. 13% of respondents described themselves as self-employed, but of those, 32% earn R40 000 or more.
There is a widely held perception that it is impossible, or very difficult, for the self-employed to access home loans, but this is not true, says Just Property CEO, Paul Stevens.
“It is not correct to say that as a freelance contract worker or self-employed business owner you can’t access a home loan. It’s just that it’s more difficult for banks to assess your actual income as this is likely to fluctuate from month to month,” says Stevens.
“The first thing the banks will do is run a credit check, so checking that should be the first thing you do. Our Just Property website has a useful tool called Your Property Journey. This makes the whole process transparent and simple and offers excellent advice. Plus, it lets you do that all important credit check free.”
The next thing you need to do, says Stevens, is get your documentation in order - bond originators have helped numerous entrepreneurs access home loans, and can assist the self-employed, contract and freelance workers put together the package that best illustrates their true earning potential and history.
Mary Lindemann, COO of BetterBond, national bond originator agrees that banks are not reluctant to grant home loans to self-employed people, but notes that in order to qualify, these applicants will generally be asked to produce different documents from the ones required from those in traditional employment.
“Most people who run their own businesses, or work on a contract or commission basis will acknowledge that their cash flow is hardly ever consistent, and that they tend to manage their money differently from those who receive a pay cheque on the same day every month,” says Lindemann.
“However, this by no means disqualifies them from being approved for a home loan. It just makes it somewhat more difficult for banks to assess whether they are a good risk or not, and whether they meet the credit granting criteria stipulated by the National Credit Act. Consequently, they will often be asked to submit more financial documentation than those in traditional employment in support of their bond application.”
Applicants in traditional employment will usually be asked to provide payslips, IRP5s and tax returns to substantiate their stated income, while self-employed individuals will usually be asked to provide some or all of the following:
- The past two years’ comparative financial statements for the business.
- Up-to-date management accounts if the financial statements on file are older than six months.
- Tax assessments for the past three years.
- Personal and business bank statements and a cash-flow summary for the past six months.
- A letter from their accountant attesting to their personal monthly income.
- A statement of their domestic income and expenditure.
- A colour copy of their ID or Smart Card.
“The best way to prove yourself to one of the lending institutions is saving for a sizeable deposit. With a 20% deposit and with all the required paper work under your arm, you stand a good chance of getting approved. And having saved a large deposit means you’ll pay the loan off quicker too,” says Stevens.
See what home loan amount you qualify for - click here
“Lenders always prefer buyers who have the financial discipline to save for a deposit and are prepared to invest some of their own money in their homes because they have been shown to be a better risk, in that they are much less likely to default on a home loan than those with no equity in their properties.”
Lindemann agrees, adding that self-employed borrowers can also make things very much easier for themselves if they apply through a reputable bond originator. “We will not only give them the correct advice about everything the banks require to be able to evaluate their applications, but will also motivate those applications and ensure that they are individually assessed on merit."
Lindemann says they are currently able to secure approval for more than 80% of the bond applications they submit, and their multiple-bank submission process also ensures that they are able to negotiate the best available interest rate for every client - and in the process set them up to cut a substantial amount off the total cost of their home over the life of the bond.
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