Home Loans for the Self-Employed

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Home Loans for the Self-Employed

It will be tougher to apply for a home loan when you are a sole proprietor, a self-employed professional, a contract worker, or a small business owner. Your personal and financial records will be scrutinised and you have to produce strong evidence of your capability to pay back a home loan, as compared to those who are traditionally employed.

Banks and lending companies view self-employed individuals as a risk since their work is on a part-time or contractual basis and they are therefore assessed differently when applying for a home loan. Self-employed individuals also pose a challenge because the applicant has to satisfy the bank’s criteria for their being able to afford the loan during the low and high months of a year. This might be viewed as discouraging news for self-employed individuals, but there are ways to improve their chances of an application.

Improving the Chances

A good credit history that shows well-managed debts would prove crucial to a home loan application. A self-employed individual, with a goal of buying a house in the future, should start their credit history by getting a credit card or opening store accounts. The timely payments will establish a good credit standing that should be checked every year. Up to date payments on business and individual tax payments are also important.

Opening a savings account with a bank to save up for a deposit will also help in giving a good chance for a loan approval since this will show stable financial responsibility. Saving for a deposit can be as little as 5%, but it would be more favourable if 10% can be reached in order to qualify for a home loan. A larger deposit can also lessen the risk that a bank may see in a self-employed individual. The way to convince banks to approve the loan would be to know you better as an individual that has a capacity to repay loans.

Business loans or a credit overdraft can be one of the ways to acquire a home, but it can also be pointed out that the easiest and most affordable would be through a home loan.

Necessary Documents

Banks and other financial institutions request for further information, which have to be satisfied in order to get a better chance of applying for a home loan. To this end, self-employed individuals need to submit the following documents:

  1. A letter from their auditor to confirm their personal income
  2. A cash flow forecast covering 12 months
  3. Financial statements for the past two years comparing their working or trading periods
  4. Personal statements describing their liabilities and assets
  5. A confirmation from SARS (latest IT34) that the tax affairs of the applicant are updated and in order
  6. Business and personal bank statements for the past 12 months
  7. Documents about the company, trust statutory, or CC
  8. All trustees, members, or directors ID documents
  9. Updated and signed management accounts if financial records are more than 6 months old

Any financial transactions showing incomes and expenses are important supporting documents that will let banks see the way an individual takes care of their finances.

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