Tips for buying a first home or a new home for the self-employed4th Jun 2017
At Estate Living one of us is in the process of finding our first home, and the other, a new home – all within an estate, naturally!
It has been an interesting experience thus far, and not quite the easiest, so we thought we would shed some light. Herewith some tips on buying a first home, and a new home for the self-employed
Generally, if you run your own business, you may find it a little trickier to buy a new home. Although your business savvy shows that you’re self-reliant and responsible, the lack of a guaranteed income from a single source can make banks anxious about financing a home for you.
“This is not to say that getting home finance will be impossible,” says Yvonne Viljoen, property finance consultant at ooba, bond originators. “But it does mean that you will have to deal with more paperwork than employed applicants, and you’ll probably come under closer scrutiny from your bank.”
Whether you are a freelancer, contract worker, sole proprietor or small business owner, you will need to present the following documents with your application:
- Comparative financials covering a trading or working period of the latest two years,
- Letter from your auditor confirming personal income,
- If your financials are more than six months old, you will need up-to-date signed management accounts,
- Cash flow forecast for the ensuing 12 months,
- Personal statement of assets and liabilities,
- Personal and business bank statements (Absa requires the latest 12 months, the other banks require six),
- Latest IT34 , which is confirmation from SARS that your tax affairs are in order,
- Company, CC or Trust statutory documents, and
- ID documents for all the directors, members or trustees.
This is a long and daunting list, but your accountant or bookkeeper should be able to help you out with most of these forms. Depending on the complexity of your application, it may also be useful to provide a short CV, and it is imperative to have your tax affairs and finances in order and up to date. it is advisable to separate your personal and business expenses.
Using the services of an expert bond originator is extremely helpful, especially to self-employed buyers,” says Yvonne Viljoen. “A bond originator will apply to multiple banks on your behalf and present your application in the best possible light. This means that you only have to fill the paperwork out once, and if you are uncertain of anything, you can get advice from experts who know the system – at no extra cost to you.”
Further, the bond originator’s service fees are generally covered by the banks, so be certain to use an expert in these regards, who knows the in’s and out’s of the trade and are up to date with the latest requirements.
Boost your chances
To increase your chances of having your home loan approved, Viljoen advises that you do the same things that any prospective home buyer does to ensure their financial affairs are in order.
“The first thing that a bank will do is run a credit check, so you should do one yourself, before you are actually making an offer on a property and time is of the essence,” she says. “All South Africans are entitled to run one free credit check a year.” This can be done through TransUnion.
If there are any judgements against your name, it is possible in some cases to rehabilitate your record, so get expert advice on how to do this.
However, your credit record is only a small part of your general creditworthiness, so it’s a good idea to make sure you have a proven history of managing your finances responsibly.
Obviously, your financial records will show whether you earn enough to afford the property that you want to buy, so it’s a good idea to manage your income and expenses carefully in the months or even years leading up to buying a home. “Banks like to see regular, consistent income, and also look for sufficient disposable income or monthly savings to afford your property,” says Viljoen.
It’s also useful to get pre-qualified for a home loan – which means that your income, expenditure and credit record has been checked in advance – so that you can make an offer on a property with the confidence that it is within your price range, and that your credit record is clean. All banks now offer this in an easy to use online process.
Having a deposit, will provide an enormous boost to your bond approval chances, indicating that you are financially responsible, have the funds to put towards the house and making the home loan a less risky proposition for the bank.
Applying for a bond can be a stressful and confusing time, it’s never pleasant baring your financial situation to anyone, however the process can be an excellent means to get your paperwork and processes in order, and allows you the opportunity to be in complete control of your financial situation, personally and professionally.
Know that you stand a good chance for a favourable application with your paperwork and credit record in order.
Wish us luck as we embark on this journal, and let us know how your journey goes.