Home Loan When Self-Employed

Getting a bond as a self-employed tradie is absolutely possible, it just takes more paperwork than a salaried applicant needs. Banks treat self-employed income as less predictable, so they want two years of financials, six months of statements and a letter of drawings from your accountant rather than payslips. Get the documents right and your trade can hold a bond just like anyone else. This guide lists what banks want and how to improve your odds.‍‌‌‌‌​​​​‌​​​‌​‌​‌​​‌‌​‌‌‌‌​​​‌​‍

What banks want from a self-employed applicant

ooba, one of South Africa's largest bond originator services, confirms that self-employed applicants generally need:

• Proof of income: a letter of drawings from your accountant, since you have no payslips.
• Extended bank statements: the last six months of personal and business statements, where a salaried applicant needs only three.
• Comparative financials: two years of audited or reviewed financial statements.
• Management accounts: up-to-date signed management accounts if your financials are more than six months old.
• IT34: your tax assessment from SARS confirming your tax affairs are in order, which eFiling prints.
• A personal statement of assets and liabilities.
• A cash-flow forecast for the next 12 months.
• Your SA identity document.
• A copy of the offer to purchase for the property.

A worked example

Nomsa is a self-employed carpenter who has been trading for three years and draws R20,000 a month from her business. A bank will look at:

• Whether her drawings are consistent, with no wild swings month to month.
• Whether her tax returns match her bank deposits.
• Her total debt-to-income ratio, ideally below 30 to 35 percent.
• Her credit score, ideally 650 or above.

Nomsa applies through a bond originator, such as ooba or BetterBond, which submits to several banks at once and gives her the best chance of approval.

How to improve your chances

• Keep personal and business accounts clearly separate.
• Pay all creditors on time for at least 12 months before applying.
• Reduce outstanding debt, such as store accounts and vehicle finance, before applying.
• Use a registered accountant. Their financials carry more weight than self-prepared figures.
• Have at least a 10 percent deposit ready. Self-employed applicants may be asked for up to 20 percent.

Common mistakes

• Applying with stale financials. Anything older than six months needs signed management accounts on top. Sort this before you make an offer.
• Mixing personal and business money. A bank cannot read consistent drawings out of one jumbled account. Separate them well in advance.
• Self-preparing the numbers. A registered accountant's financials are taken more seriously than figures you typed up yourself.
• Making an offer before pre-qualifying. Get a pre-qualification check first, because bank criteria change and you do not want to be tied to a property you cannot finance.

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