The income that different people get periodically comes in various forms. For some it comes as a salary per month or per week if they are formally employed, whilst for some it comes as profit in the event that they are self-employed. Whichever the case may be, the goal is to sustain a living of choice and consequently people choose different professions and modes of their service at will. 

Of course there are identifiable advantages and disadvantages with each mode of service i.e formally employed or self-employed. For one, an employed person is entitled to their salary whether the business is doing well or not as long as their contract of employment still subsists whereas low business means reduced income for the self-employed persons.

In terms of credit applications i.e home loans, formally employed persons normally are not burdened with many things to prove their creditworthiness. It is thought that if they have a contract in place which secures their employment, then it also is telling of their ability to service the loan repayments.

Unfortunately, this is not usually the case with self-employed people, due to the fluctuating nature of their income depending on the viability of their trade or business. Further, it is not a given that tomorrow the trade will still be in operation because some decide to suddenly close shop in the event of persistent financial woes. Owing to such risk, some lenders may require also that the self-employed applicant put a down payment (deposit) to alleviate the risk associated with their application and repayment prospects.

Financial institutions therefore undertake more comprehensive assessments when it comes to self-employed applicants of credit, unlike the formally employed. Consequently self-employed applicants of home loans have to provide much more documents and information for the financial institution to undertake the assessment.

Home Loan Requirements for Self-Employed People

The below listed are a general guide of what financial institutions normally request from the self-employed applicants of credit to assess the credit application, home loan included. These may differ here and there owing to different institutions having particular requirements, the type of business the self-employed applicant is involved in and the amount applied for.

• Business bank statements
• Personal bank statements
• ID document
• Residential and business address information
• Lease details if the business is a tenant
• Tax certificate of good standing from SARS
• Assets and liabilities inventory
• Documents showing past financial performance
• Auditor’s letter confirming income
• Management accounts

Most of the above are in stark contrast to the documents required where a formally employed applicant is involved (whereby they mainly require ID, proof of address, payslip and 3 months bank statement). The above may differ from one financial institution to another depending on the circumstances of each application i.e nature of business, amount applied for, and business performance.

It therefore is enlightening that way before a self-employed person makes an application for a home loan, they must ensure that their financials, tax, inventory documents, registration, income statements and other listed above are in order which ultimately improves their prospects of being granted home loan credit.

It is also important to show proof of ability to separate business and personal affairs especially the financials, as it speaks to the risk and possibility of having one being a burden on the other. At the end of the day it is important to the lender to be convinced that the self-employed applicant is able to manage their income and expenditure on any given period, as this is critical for loan repayment.

Phoenix Bonds - Bond Originators South Africa

Phoenix Bonds assists self-employed and formally employed persons to get the best deals when it comes to home loans. We negotiate favourable interest rates that suit your personal circumstances. Owing to the burdensome requirements attached to credit applications for self-employed persons, we go the extra mile to increase the chances of being approved of the required credit.

We specialise in bond origination to secure the best deals on your home loan, as well as bridge financing. We commit our work to higher standards so that our clients walk away secure in the services we offer.

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