Getting a Bond When You're Self-Employed

Working for yourself can be great – freedom, flexibility and no boss. But, when it comes to getting a bond, it often makes things trickier. That’s not to say that it’s impossible but you must be prepared for a more tedious and time-consuming process than if you had a pay slip.

Essentially a self-employed person is seen as a bigger risk for a bank as there is no one paying them a guaranteed monthly salary. Because of this, banks require much more documentation than they would otherwise. Be prepared for the banks to require the following documentation:

1)      Relative documents pertaining to your company, trust, CC, etc. … If Applicable

2)      Signed 2 years’ financials running co-currently 

3)      Management accounts for latest tax year (in format of financials) if financials older than 6 months

4)      Letter from auditor confirming monthly income / drawings for the past year

5)      Letter from auditor confirming share-holding of company

6)      6 Months business bank statements (only applicable if another bank is approached other than the bank where the business account is held) 

7)      3 Months personal bank statements (only applicable if another bank is approached other than the bank where the personal account is held)

8)      Latest signed and dated statement of personal assets & liabilities.

9)      ITA 34 not mandatory for sole proprietors, but the bank could call for up to 3 years ITA 34’s

There is a lot more admin involved here, so it is a good idea to work with a bond originator. They know what the banks are looking for and will be able to assist you with every aspect of your application. They give you the added advantage of sending your documents to all the banks which saves you from having to fill out endless forms and scan in documents repeatedly.

Bear in mind that because a self-employed person is a potentially risky option for a bank, they may require a bigger deposit so be prepared for this. Having said that, it is possible to get a 100% bond, particularly if you are not buying at the upper limit of your affordability bracket.

Another point to consider is how much you pay yourself monthly from your business – while it may be tempting to pay yourself less in order to save tax, you will then also be limiting the size of the loan you qualify for.

At the end of the day, the factors that the bank takes into consideration are very similar to if you were employed – the property value, your affordability and your credit score. The latter is very important and worth checking up on before you apply. As an already risky client, if you have a low or average credit score the bank will be hesitant to lend you money. On the other hand, if they can see that you have a history of paying on time and honouring your commitments, they may be more willing to give you the benefit of the doubt.

There is hope for getting a bond when self-employed, so put yourself in the best possible position by making sure your credit record is pristine, your documentation is all up to date and finding a great bond originator to help you each step of the way.

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Writing blogs about the property market of South Africa.

Content Team - Real Estate Agent