It may sound counter-intuitive, but it can be even more difficult for self-employed people to raise a bond than it is for salaried employees.
The solution begins long before you’re even ready to buy.
According to Riaan van Deventer, director of Engel & Völkers Southern Africa, you need to ensure that your personal credit rating - and that of your company - always remains clear, “that you pay all your accounts on time, and that you have sufficient funds in your bank accounts to honour debit orders.”
He advised against moving between banks or applying personally for loans from several banks - instead, he recommended working with a professional mortgage originator, “who will advise you on the quality of your application, and manage the process from application to approval.”
He explained that the banks are cautious when assessing applications from people who are self-employed: you're considered to be in a higher risk bracket because your income tends to fluctuate - which means it’s difficult to guarantee that you’ll be able to repay your loan.
But, he said, the banks understand that the current economic client has forced many South Africans to start businesses of their own, and that they “appreciate the risk taken by individuals to generate income out of their own businesses - which is healthy for our economy.”
This is why, he said, the banks strive to assist in every way they can - and he added that it actually is quite feasible to meet the necessary criteria.
The banks need to satisfy themselves of three factors when they consider any home loan: Is the property correctly valued? Can the applicant afford the repayments? And - Does the applicant have the right credit history?
There’s not much you can give the bank to show that you’ve paid attention to the first and third of these questions (they’ll get their answers from their evaluators and the credit bureaux) - but you’re going to need quite a few documents to prove the second: that you can afford to buy.
This is where planning pays off.
According to Riaan, if you’re self-employed, you should be running at least two separate bank accounts: a trading account for your business, and a personal cheque account for yourself. He also suggested that you should pay yourself a regular, fixed salary - preferably on the same day of every month - by transfer into your personal account. But he cautioned that you should also make sure in advance that your salary will be sufficient to prove that you can afford a bond.
For the application, you’re going to have to provide six month’s - or even a year’s - original bank statements for both your business and personal accounts.
“If you have the financial resources to pay at least 20% or more of the purchase price as a deposit, and you also have cash available for the transfer duty and attorney fees, it will substantially increase your chances of obtaining a mortgage bond on a property,” said Riaan.
He said that each bank has its own qualifying criteria - which is why it’s a good idea to use a bond originator like Engel & Völkers’ in-house brand, E&V Finance.
“They will assist you to ensure the correct documentation and application forms are properly completed and prepared, and they will then submit your application to a number of selected banks.
“They’re very familiar with each bank's requirements, so they’ll guide you to make certain you have the best possible chance of being granted a bond,” said Riaan.
· Most banks provide online checklists of the documents you might need when applying for a home loan: see for example FNB or Nedbank.