Self-employed? What you need to know when applying for a home loan

Before Covid-19, the property market conditions were geared to favour buyers. The pandemic also saw government lowering the interest rate to a fifty-year low to ease the financial burden on consumers.

This is great news for first-time property buyers. In
addition, the threshold on transfer duty was raised to R1 million earlier this
year which means that the first R1 million of the value of the property is tax
free.

Despite these favourable conditions, financial institutions have
very stringent criteria when applying for a home loan. Self-employed applicants,
including freelancers, contract workers, sole proprietors, and small business
owners, often struggle to qualify for a home loan and they are of the belief
that they will never qualify. This is not true.

Kim Hogben, principal at Leapfrog Durban Central says that
being organised and having your affairs in order is the first step.

To qualify for a home loan, you need to demonstrate that you
can comfortably afford the monthly bond repayments.

The paperwork

You need to ensure that your paperwork is in order before you
apply for a bond. This will save you a lot of time and hassle once the process
is set in motion.

Typically, the following documents will be requested by the
bank:

  • A letter from your accountant confirming your
    personal monthly income.
  • Financials covering your income and expenditure
    for the last two years of working or trading.
  • A twelve-month cash flow forecast.
  • A list of assets and liabilities.
  • Personal and business bank statements for at
    least six months.
  • Your latest IT34 which serves as confirmation
    from SARS that your tax is in order.
  • Company registration and/ statutory documents,
    if applicable.
  • ID documents of your fellow business directors,
    if applicable.

Tax

You need to ensure that your tax is 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 to advise you on how to best go about
ensuring that your tax is in order and that your credit worthiness is in good
standing.

Your credit records

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
,” Hogben explains.
Bad credit from defaulting on payments and loans, filling bankruptcy and unpaid
judgements, decreases your chances of having your credit application approved.

All South Africans are granted one free credit check per year. “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 counsellor can assist with this
”.

Saving for a deposit

A deposit towards your bond can be a great help in securing
your home loan. If you have substantial savings, this demonstrates that you are
financially responsible and likely to honour the home loan repayments monthly.

Do not mix personal and professional

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

Credit, finance and admin in general can be tricky
business, so rather than struggle on alone, recruit the help of the experts –
be it a tax consultant, accountant or trusted property advisor
,”
Hogben emphasises.

“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”

she concludes.

Source: Propertywheel.co.za | https://propertywheel.co.za/2020/07/self-employed-what-you-need-to-know-when-applying-for-a-home-loan/

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