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Wednesday Jun 12, 2013

'More difficult for self employed people to get bonds, so have documentation ready'

It is a fact that it is more difficult to get a home loan if you are self-employed than if you work for a company and earn a fixed salary every month, says Avia Ebrahim, bond consultant for IHFS, the bond origination company, but if you are organised and know beforehand what is needed when applying for a mortgage bond, it will be easier.

"Although it may seem obvious that if you own your own business and are self-employed, that you are a responsible enough person, but because your income is driven by you alone, the banks tend to be nervous about approving home loans," said Ebrahim.

If a person knows what will be required by the banks and has all of this ready when applying for a bond, it will make the process much easier and quicker, she said.

There are certain documents that will be needed by the banks from the prospective buyer if he is a contract worker, a freelancer, a sole proprietor or small business owner. They must present the following with their home loan application if they are to stand a chance of getting their finance approved, said Ebrahim.

  • Financials covering a trading period of the last two financial years (these must be no older than six months old and signed off by an accountant or auditor);

  • A letter from your accountant or auditor confirming your personal income, i.e. the profit, salary or dividends paid to you;

  • A personal assets and liabilities statement;

  • Personal and business bank statements (for up to 12 months, depending on the bank);

  • A cash flow projection for the next 12 months;

  • The most recent IT34 from SARS, which confirms your tax payments are up to date;

  • Company, cc or trust documents; and

  • Identity documents of the directors, members or trustees involved.

    "It seems like a lot to have to do in order to get a bond but in most cases your accountant will be able to help with most of the documentation and he will know whether your tax payments and finances are all in order," she said.

    "Many self-employed people have the tendency to mix personal and business accounts. When it comes to working out what you actually earn, if there are separate bank accounts, it makes it easier to assess and establish what amount could actually be paid towards a bond."

    "A good bond originator," said Ebrahim, "would assist in getting all the necessary paperwork done and present your bond application to a few banks. It is better to rely on their expertise rather than doing it yourself, as this can be a time-consuming task and they will be able to tell you whether there is anything missing or needed from you before applying for home loan to increase your chances of success.

    "As with any person applying for a bond, be sure that your finances are in order before applying. Credit checks will be done and, as all people get a one free credit check per year, it is wise to do this yourself before approaching a bank for a loan."

    In this way if there is anything that would affect the loan application adversely, the applicant would be able to sort it out himself beforehand. There are various aspects to a good credit record, said Ebrahim. The buyer should always pay their bills in full and on time, even small amounts paid one or two days late show up as a bad payment record.

    "Most banks would say that if the applicant cannot pay a R200 account on time, how will he manage to pay his mortgage on time?" said Ebrahim. "If there is a chance that there will be any "black marks" against your name, wait and rehabilitate your record (which could take up to six months) so that you stand a higher chance of getting your finance approved."

    "In this way, there are no surprises, and what could be a very stressful time anyway, can become less so."

    IHFS Press Release


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