JOHANNESBURG – Being self-employed should not affect your chances of being approved for a home loan but it often does result in applications being declined, said Mike van Alphen, the national manager of the Rawson Property Group’s bond origination division, Rawson Finance.
“This is not because the banks don’t want home loan business from people who run their own businesses or work on a contract or commission basis. In fact, such individuals are generally subject to the same risk assessment and credit qualification criteria as other potential borrowers, and can obtain loans quite readily if they are willing and able to produce certain documents.
“They can also make things easier for themselves if they apply through a reputable bond originator that will not only give them the correct advice about everything the banks will require to be able to evaluate their applications, but will also motivate those applications and ensure that they are individually assessed on merit,” Van Alphen said.
Van Alphen explained that the number of self-employed people in SA’s formal sector has been on the rise since 2009 and currently stands between 1,5 million and 2,2 million self-employed people. According to StatsSA, a further 1,5 million people are currently running small businesses in the informal sector, so this is not an insignificant issue for the real estate industry.
The difference between home loan applicants who are employed and those who are self-employed is that the employed applicants can usually provide pay slips, IRP5s and tax returns to substantiate their stated income, while self-employed individuals have no third-party verification.
This means that the banks have to fall back on other ways to assess their earnings and income stability, and will usually use some or all of the following:
- Annual financial statements and tax assessments for the past three years;
- Personal and business bank statements and a cash-flow summary for the past six months;
- Management accounts of the last three months;
- A copy of the lease if a business rents a premises;
- A certified copy of ID and proof of residence;
- A letter from accountant attesting to personal monthly income and
- A statement of domestic income and expenditure.
Van Alphen said self-employed home buyers should also ensure that they do not claim to have more income than that declared to the SA Revenue Service (SARS).
“Lenders always 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 that they are much less likely to default on a home loan than those with no equity in their properties.”
Borrowers who need more information or assistance can contact Van Alphen on mike@rawsonfinance.co.za or 021 658 7100.
