PROPERTY

SELF EMPLOYED? HOW YOU CAN INCREASE YOUR CHANCES OF QUALIFYING FOR A BOND

Most banks view self-employed home loan seekers as high risk and as a result would only offer them a 90% and not the full 100% bond, says Olen Sterling, mortgage expert at Property Loans. Sterling says affordability is a big key factor, and as such applicants will have to prove to the bank that they have sufficient disposable income available each month to afford the monthly bond repayment. “A clear credit record is a must; a negative record will not be treated favourably.” She says self-employed home loan seekers must ensure that their business financial records are up to date and that they employ the services of a reputable accountant to assist with drafting their financial records on a yearly basis. “Each month you can draw a salary for yourself into a personal bank account so that the bank can clearly trace your own personal drawings from the business. This will be used as the basis to determine your affordability for the home loan you are applying for,” Sterling advises. Asked about the success rate of selfemployed home loan applicants, Sterling says it depends on each business’ financial standing. As a mortgage consultant, she would conduct an upfront interview prior to the applicant applying for the bond and ensure that all the minimum criteria are met before she lodges an official application at the banks. This includes an upfront credit check to cover the basic credit score requirement. But she says it’s difficult to provide preapproval for a self employed applicant, since their income varies on a month to month basis, however the recent annual turnover and business profit incurred would give them a clear indication of whether the applicant will be considered favourably or not. “If the business financials reflect a positive financial standing, and we can trace the turnover in the bank account records, there is a good chance of the application being granted. If the declared income doesn’t match up with the business financial records and bank statements, there will be very little we could go on to convince the bank otherwise.”

Here are a few requirements for securing a home loan for any self employed applicant:

• The business must be operational for a minimum period of three years. • The business account must reflect income deposits – cash payments are unacceptable. • Accounting business financials must be produced for a period of three years, which indicate the financial position of the business such as profitability and cash flow. This comprises of an income statement, balance sheet, statement of assets and liabilities, cash flow statement, and accounting notes to the financials. • Proof of business registration which confirms business ownership • If the latest financials are unavailable, then recent management accounting reports must be submitted for assessment. The management reports usually include an interim income statement and balance sheet signed off by the business accountant and business owner. • Proof of yearly tax returns are rarely called for, however, these can be requested based on each individual’s type of business.

The key factors that the bank will look at when assessing the financial and banking records:

• The profitability position of the business, • Available balances in the bank account at the end of each closing month, • The ratios between assets and liabilities for the business. Overall, the business needs to reflect a positive financial position and steady growth over the three year period. The most recent personal tax return accompanying the signed employment contract and a six month record of salary payments would be needed for assessment purposes. While each application is assessed according to its own merit of course, it’s also easier to secure finance through a bank where the business banking portfolio is held. Sterling suggests that the applicant consults with a mortgage expert to weigh up the pros and cons of their financial decision before committing to the property purchase.