Self employed bond frustrations

[brandon9]

We've finally found the family home we've been after for two years. We've managed to reach a price acceptable to the seller, we've got a 18% deposit which we've paid to the conveyancor. The house is in an incredible area a stones throw away (literally) from one of SA's best school, and we purchased below it's value. Now we're in this Kak bond application process.

I've got my own little consultancy PTY. it's only me in the business. The business was set up as a side hustle without making money for about 8 years and eventually became my main hustle, so I've had a significant loan account which I've managed to draw out and live on - I therefore haven't drawn a salary, but the business now brings in roughly 4.5 times what the bond would be every month. Beyond this, I earn a retainer salary outside of the business, and my wife brings in a monthly paycheck. All in all we bring in about 6 times the would-be bond repayment every month, and have consistently done so over the past year. The business revenue has doubled over the past year, and tripped the year before that.

Beyond that, both my wife and I have great credit records and have absolutely zero other debt.

So far we've been declined by Standard Bank, no word from FNB and Nedbank, ABSA (who I bank with) are back and forth with our originator with questions.

How, on God's green earth, do self employed people actually do life when this ABSOLUTE kak is what's available to them? Or not available? Any advice would be greatly appreciated - we've got 10 days to secure this bond.

 

[samiradedas]

@brandon9 Have you tried Investec?I know that they are very thorough with such.

 

[dxfax]

@samiradedas Great advice. Your originator should be fighting for you. And two of SA’s biggest originators can also submit to Investec, along with the typical big four banks.

 

[zeorge]

@dxfax Invested has specific requirements in order to obtain a home loan through them.

The applicant will need to meet their eligibility requirements and become an Investec banker in order to obtain a home loan through Investec.

 

[basefan]

@samiradedas This. Investec in my experience tries to understand your specific scenario.

 

[klaas]

@basefan Their forms, to prove affordability, are the most complex I have seen. I’m sure if you contact them, they will be able to add up all your income and get you the bond.

 

[basefan]

@klaas They are much more bespoke

 

[patriciusv]

@brandon9 I have a bond with FNB as a self employed person.

1. Pay yourself a salary, drawing on loan account will get you into trouble with SARS eventually unless you charge yourself reasonable arms-length interest
2. You could also pay yourself a dividend
3. Have audited signed AFS + up to date management report for current year + letter from your accountant stating what your total compensation is, including any personal expenses the company may be paying for you (like car repayments, internet, petrol, etc)

The banks are familiar with this setup and will grant a bond it's just more paperwork. Get your ducks in a row and it absolutely is possible.

Surprise SB rejected as they tend to be more chill usually. As someone else said try investec

 

[zeorge]

@brandon9 Hi man, a home loan is a massive investment, and the banks are required by law to make sure that do not recklessly hand out loans. Self employed applications are difficult for banks because you may be able to meet the affordability requirements today but will you be able to do so in 20-30 years. Is your current earnings sustainable? Is your company able to grow? Will it survive a recession? Is your scope of work future proof? these are some of the questions the banks must satisfy themselves with.

I can understand that it may be frustrating but as long as the banks haven't declined, it means there's a chance of being approved.

I am a bond originator myself, and from my experience, ABSA will usually go out their way to approve their customers. So welcome the back and forth questions as it means they are looking for ways to approve your application and try to cooperate as much as possible.

All the best

 

[racam]

@zeorge Hey man, just a question... isnt all those questions exactly the same for an employee?

I mean the business they are working for can close down any moment. They can get fired, layed off and then also loose their income?

Yes they can possibly get a new job, but so can a self employed person that has a track record of pretty good earnings?

 

[zeorge]

@racam Yes, they will apply, but as you mentioned, an employee can get a new job should anything happen to their current loss of income. The banks also look at the length the company is in existence for employed persons. Obviously as startup company is associated more risk than Old Mutual for instance and will take into account that risk when assessing an application.

With self-employed persons with a track record, it will definitely mitigate the application as it shows sustainability. The banks also look at the EBITDA (earnings before interest, taxes, depreciation and amortization) over the different financial years to determine the company's growth. A history of growth will always prove favorable.

My comment was made in a general sense and each application is different and banks will assess each applicationon its own merits.

Please don't misunderstand what I inferred, was not saying it's unlikely to get approved as a self employed person but requires more scrutiny from the bank as monthly income and annual income can vary which generally results in longer processing times which the OP was complaining about.

 

[racam]

@zeorge Yea 100% dude, thanks for the awesome reply.

It just feels to me that in the end the risk is kinda the same more or less. (Provided the self employed person has a good track record)

 

[vancouverguy]

@ayryil That sounds a lot like your perspective and not a lot like 'here are the banks statistics'

 

[ayryil]

@vancouverguy It is exactly my perspective because thats exactly my experience. You opinion doesnt get to overide that. Seeing you know it all, please provide the commercial bank statics, I'll gaurantee you the majority of their business operations is employees.

 

[vancouverguy]

@ayryil I did not make the claim of how it is, you did.

Evidence for your claim is your responsibility.

I claimed that it sounds like your perspective and not like the banks - which you just confirmed it is.

 

[ayryil]

@vancouverguy Absoluley i did because its my experience and again your opinion doesnt get to overide what somone else has experienced.

If you aren't happy with somone else opinion other than your then you own, then that's on you, you must deal with that personally, the world cannot tippy toe around you to accommodate you.

You mentioned the bank statistics! Provide them then and then we can discuss it further but you know very well that banks are risk adverse to self employed individuals and that is simply the fact and so employed individuals will make up the vast majority of their clientele

 

[truthandpeace]

@brandon9 Banks will use your personal accounts to track your living income and expenses. Always pay yourself a salary. This will allow for their scoring process to handle the rest. Money in a business account can be gone in an instant as the company is viewed as a separate entity.

 

[noeljack]

@brandon9 Banks are very conservative. Usually they’ll ask for your last personal tax assessment and maybe bank statements to assess affordability for self employed people. But you’ve been living off a loan account so I take it you don’t have salary slips from the PTY?

Unfortunately it is a bit of schlep as a self employed person. But, it can be done.

 

[seeking836]

@brandon9 As a freelancer I can confirm it’s super frustrating to get home loans… what I’ve done in the past and recently is to apply as a contractor instead (I get my clients to draw up letters confirming I contract for them for ‘x’ a month indefinitely). It really is as simple as that.

I wonder if between your wife’s salary and your monthly retainer you would earn enough to qualify? Downside is that you might not get a great interest rate if you just barely qualify based on just that.

 

[brandon9]

@seeking836 Thank you for the advice, problem is that the funds still come in through my business bank account. I think that's the real crux.

Wife's salary and my retainer unfortunately only cover about 50% of the bond requirement.