Self-employed home loan applications are notoriously more difficult to get approved than other types of applicants – but they don’t have to be. In many instances, self-employed purchasers can afford the bond… it’s just about knowing what documents are needed. Understanding what the banks require and why is the best starting point for applicants.
Getting a Home Loan has NEVER been easier!
Read the information below and then let our experienced bond originators assist you in the way forward - to get the best possible offer, at the bank that is right for you.
Before anything, you have to ascertain that the bank deems you self-employed. It boils down to: Do you have a shareholding in the business where you work and, if so, what is the percentage of the shareholding in the business?
Banks have differing levels of shareholding in which they deem you to be self-employed - this varies from anywhere above 9% (Standard Bank) to 19% (FNB).
You are also considered self-employed if you are:
However, freelancers and sole proprietors have slightly different (and less stringent) documentation required for approval.
You are NOT self-employed if you are:
N.B: If you are a non-shareholding employee of a self-employed spouse, but are married in community of property, the bank will likely request the full suite of documents for a self-employed applicant.
If a self-employed applicant is purchasing property in their personal capacity, banks will generally only consider the applicant’s drawings from the business as income – this may come in the form of salary, commission, bonuses and/or dividends. They will not use revenue, turnover, or even retained profit of the business itself.
Therefore, it is important to get one of our bond originators to conduct an affordability assessment prior to application – as you may need to increase the drawings from the business to an amount suitable to qualify for the bond (so long as the business is able to sustain the increase).
Additional documents for self-employed applicants will be latest 2 years of audited financial statements, updated management account for the interim period, 6 months of business bank statements, 6 months of personal bank statements and written confirmation of your income (from your accountant).
It is therefore essential to have your accounting affairs in order – a good accountant will always pay for themselves in the long run!
Under the Companies Amendment Act 2008, South African-based companies are required to prepare annual financial statements within six months after the end of its financial year. In addition, the Regulations require that these statements be in line with the prescribed reporting standards (either IFRS, IFRS for SMEs or SA GAAP) as per the company’s public interest score.
Generally, for bond applications, the financial statements should include the following:
When assessing financial statements, the banks are essentially checking the following:
Like all bond applications, a deposit will improve the chances of a loan being granted – and at a more favourable rate of interest. Banks prefer buyers who have the financial discipline to save 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 saying that, self-employed applicants who can provide the relevant additional documentation and meet the qualifying criteria (as per full-time employed) are just as likely to secure mortgage bond finance up to 100% as any other type of applicant.
The main reasons why self-employed applications are rejected or declined by banks include the following:
Banks also require the latest 2 years’ financials, so if your business has been operating for less than two years, you’re unlikely to secure mortgage bond finance. There are rare exceptions to this rule, where the applicant has compelling reasons for a motivation.
From 1 September 2021, Nedbank started accepting applications for self-employed applicants who didn’t have an existing relationship with Nedbank. In addition, self-employed applicants who drew a regular salary from the business could be assessed with the same requirements as a full-time employed applicant.
To qualify for this, applicants would need to be able to provide the following evidence:
This is a great streamlined option for those with established businesses drawing a regular salary. Although you may only be applying at one bank, our bond originators will motivate on your behalf to ensure you get the best interest rate, rather than the bank’s standard rate.
It’s essential you meet the requirements to raise a home loan before you start house hunting and certainly before you make an offer to purchase. It’s not worth the disappointment and frustration for both buyers and sellers, when there are delays or declines in the bond approval process.
There are many things to consider when you are self-employed, but rest assured that your bond originator will help you better understand your options. Give yourself a choice between multiple offers and requirements by applying for a home loan with Phoenix Bonds.
Contact us now to get started!
* Self-employed applicants who receive a regular salary from their business
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