Even before the Covid-19 lockdown property market conditions were geared to favour buyers. And then the pandemic saw government lowering the interest rate to a 50-year low to ease the financial burden on consumers. This is particularly great news for property buyers, particularly those looking to enter the market for the first time. What also helps is that the threshold on transfer duty was raised to R1 million earlier this year, which means the first R1 million of the value of the property is tax free.
Despite the favourable conditions, the banks still have very stringent criteria that must be met when applying for a home loan. Self-employed people, including freelancers, contract workers, sole proprietors and small business owners, often report a struggle to get a home and sometimes even believe they will never qualify for a home loan, which is not true.
“Being organised and having your affairs in order is the first step, and already gives you a great advantage,” says Kim Hogben, principal at Leapfrog Durban Central.
In order to qualify for a home loan you need to demonstrate that you can comfortably afford the monthly bond repayments, which is easier if certain matters are clear.
Start by ensuring your paperwork is in order before you even consider applying for a bond, as it will save you a lot of time and hassle once the process is set in motion.
Typically, the following documents will be requested by the bank you’re applying to:
● A letter from a your accountant confirming your personal monthly income.
● Financials covering your income and expenditure covering the last two years of working or trading.
● A 12-month cash-flow forecast.
● A list of assets and liabilities.
● Personal and business bank statements going back at least six months.
● Your latest IT34, which serves as confirmation from SARS that your taxes are in order.
● Company registration and/or statutory documents, if applicable.
● ID documents of fellow business directors, if applicable.
Make sure all your tax affairs are in order. Outstanding tax returns, of whatever nature, will have a detrimental impact on the outcome of your home loan application.
Consider recruiting the services of a tax consultant or professional accountant if you need to as they can advise on how to best go out ensuring your tax is in order and creditworthiness is in good standing.
“A clear credit record is the foundation of sound personal financial management, and one of the first things that will be scrutinised when you apply for a home loan,” Hogben explains. Bad credit, which typically results from defaulting on payments and loans, filing bankruptcy and unpaid judgements, decreases your chances of having your credit application approved.
All South Africans are granted one free credit check a year so it is advisable to that before putting the application process into motion. “There is no need to panic if your credit record is unfavourable as it is possible to restore it to good health. A certified debt counselor can assist with this,” Hogben shares.
Save for a deposit
Having a deposit to put towards your bond can be of great help in securing a loan. Showing that you have substantial savings demonstrates that you’re financially responsible and thus likely to honour the bond repayments on a monthly basis.
Don’t mix personal and professional
Keep your personal and professional finances and admin separate. Tax law does allow for certain personal expenses that result from running a business to be claimed as such, rather than as part of a taxable salary, but this could appear as inflating your income, which could count against you.
Work with professionals
“Credit, finance and admin in general can be tricky business, so rather than struggle on alone, recruit the help of the experts – be it a tax consultant, accountant or trusted property advisor,” Hogben emphasises.
It is also highly advisable to use the services of a bond originator as this increases your chances of success. These consultants assist with the home loan application process and are well versed in the administrative intricacies. They will forward your application to various financial institutions to help secure the best deal.