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Self-employed? Must-knows when applying for a home loan

20 Aug 2019

The laborious bond application process is even more painstaking for the self-employed, and it’s critical that these buyers take the time beforehand to familiarise themselves with exactly what is required and the criteria to be met as applications can easily be delayed, or even declined, due to simple omissions or errors.

It’s critical that self-employed buyers take the time beforehand to familiarise themselves with exactly what is required and the criteria to be met as applications can easily be delayed, or even declined, due to simple omissions or errors.

This is according to Herculene Visser, Area Specialist in Tokai for Lew Geffen Sotheby’s International Realty, who says that banks are more cautious about granting loans to self-employed home buyers and they usually require deposits of up to 20% as well as more documentation than salaried buyers, who only need their salary advice and copies of their last three months’ bank statements.

Visser says it’s not only important to ensure that all the required information is included, but also that it’s comprehensive without any omissions and in the format required by the lending institution.

“Oftentimes we see applications turned down because self-employed applicants have asked their bookkeepers, who may not be experienced in home loan applications, to compile their information for them,” she says.

“The best way to avoid delays and disappointment is to apply for pre-approval through a bond originator before they even begin searching for a property.”

This way, Visser says all their documentation will be in place when they do apply for a bond, they will also have a clear idea of exactly how much they can afford to spend, and originators have the ability to upload and send the documents to banks in the format that their system accepts.

Kay Geldenhuys, Head of Sales Fulfilment at ooba, national bond originator, says requirements can vary according to the application and the loan amount requested, but self-employed buyers will generally need to provide the following:

- Comparative financials covering a trading or working period of the latest two years.

- A letter from their auditor confirming personal income.

- If their financials are more than six months old, the bank will need up-to-date signed management accounts.

- A cash-flow forecast for the ensuing 12 months.

- A personal statement of assets and liabilities.

- Personal and business bank statements.

- Their latest IT34, which is confirmation from SARS that their tax affairs are in order.

- Their company, closed corporation (CC) or trust statutory documents.

- The ID documents of all their business directors, members or trustees.

- Depending on the complexity of their application, it may also be useful to provide a short CV.

Geldenhuys says it’s prudent for self-employed buyers to ensure that their financial affairs are well in order before making an offer on a property as it will not only improve their chances of approval, it will also avert costly delays.

“Once an offer to purchase has been made, time really becomes of the essence and mistakes are easily made in haste. Some errors are quickly remedied, but others can’t be fixed overnight, and this is when costly delays can occur,” she says.

“Potential pit falls for self-employed applicants are where their financial statements are outdated and they do not have up-to-date management accounts, where they have not kept their personal expenses separate from their business expenses, where their financial and tax affairs are not in order.”

Melissa Webb, a Partner and Conveyancer at Guthrie Colananni Attorneys, says in the event that the buyer submits an incomplete or incorrect application, the home loan will either be declined or granted with incorrect information, which is then sent to the attorney attending to the bond registration.

“In the event of a grant on the incorrect information, the bond attorneys would need to apply for an amendment which could potentially then delay the bond registration and transfer process,” says Webb.

“In some cases, the seller may even elect to place the buyer in breach for non-performance if the bond has been granted but is now being amended and the amendment causes a delay in transfer.”

Webb adds that in the event that the agreement of sale contains a 72-hour ‘meet or beat’ clause, the buyer needs to be even more mindful of ensuring that their finance is granted promptly.

“With a 72-hour clause the seller may continue to market the property until such time as the suspensive conditions in the agreement are fulfilled,” she says.

“The buyer therefore has to deal with the possibility of another buyer putting in an offer to purchase which is more favourable to the seller, which the seller can accept, subject to the first buyer not waiving or fulfilling the suspensive condition within 72 hours of the new offer.”

“The additional criteria for self-employed buyers is understandably daunting, however, with the guidance of knowledgeable and experienced property finance specialists and estate agents, it’s possible to seamlessly navigate the potential administrative minefield that acquiring your dream home entails,” says Visser.

“Avoid the disappointment of losing your dream home through a declined home loan application - or even being pipped to the post by another buyer who is more organised by having all their ducks."

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