Many prospective buyers are interested in property and want to know if you can get a home loan without permanent employment. Property is one of the most popular investments, whether for personal use or for investment purposes. It is low in risk and you can reasonably expect a property that you bought to be worth more the following year.
Many potential buyers work as contractors in a fixed term or project basis. Some are freelancers or independent contractors working in the gig economy. There is a different process for getting a home loan when self employed, which is different to being employed on a contract and is typically longer. Here we are covering the situation where you are employed by a company, but not on a non-permanent basis.
There is a rather popular opinion that in order to get a home loan you need to have a permanent job. This rationale makes sense because a home loan is typically for a long duration, usually between 20 and 30 years. It would then make sense that having a permanent job means that the chance of you being able to pay a loan for that long are better. But is it really?
Lenders and Permanent vs Contract Employment
Times are changing. The employment rate is very high in South Africa and more and more companies are hiring on a contractual basis and fewer people get hired on a permanent basis. At the same time, banks have to continue to make money. The fundamental mechanism of a bank is to lend money and make a profit from the interest. With less and fewer people being permanently employed, lending policies have to slowly change to fit around the employment landscape, or banks will go out of business.
Can You Get A Home Loan Without A Permanent Job?
The short answer is yes, you can get a home loan without a permanent job. However, there are some things that you need to have in place before you apply for a home loan without a permanent job. Having a good employment and credit profile will improve your chances of getting home loan.
When I wanted to buy my first property, I did a lot of research into whether I needed a permanent job to get a home loan. I had a total of 5 years work experience, all under fixed term contract. I never applied for a home loan early on because I heard countless times that you need to be permanently employed to get access to home finance. Recently, when doing research on the matter, I found nothing in writing to confirm this. So I just made the application to find out for myself.
What prompted me to make a home loan application is the Nav >> Money feature on the FNB app. The feature told me all the credit facilities that I qualify for and under home loan, it said that I do qualify for a home loan. This was while I will still working only gig economy jobs.
The green bar for home loan was not as “full” as it is now but FNB did give an explanation on how to improve it within the app. I worked on improving it by ensuring that I did not spend all the money I had within the month. I had about one third of the money I received in a month left in my account at the end of the month. The time to improve it two where it is (from around 65% to around 85%) in the above image is 4 months.
The FNB app also offers an option to get pre-approved for a home loan from the app so I applied for pre-approval and the next day I got a pre-approval email and a bond application form.
After reading through the application form, I saw that there was a field where they asked about permanent employment. At that moment, I decided to not apply for a home loan through the bank. I would save up for a deposit and apply through a bond originator after I had saved up the money.
Applying Through A Bond Originator
After saving up, I contacted a bond originator and they took me through their own pre-approval process The reason for applying through a bond originator is that I read in many articles that bond originators are able to negotiate with the banks on your behalf. If you apply by yourself, you cannot negotiate and the result lies solely on how your application looks on paper.
The heartening thing about the application form from the bond originator is that there was no question about permanent employment. After being pre-approved, I made an offer on the property I wanted to buy and the estate agent submitted all the documentation to bond originator. Within a week, I got a response from the first bank, stating that they had approved my application in principle.
Job And Credit Status When I Applied For A Home Loan
When I made my home loan application I was into the second month of a job for a which I was on a 3-month contract which I was sure would be renewed. I had also been working an online job for a year prior to that. I was getting two salaries when I applied but the loan amount that I was pre-approved for was the maximum for what I could afford at the day job for which I produced a pay slip.
My credit status was classified as very good, which is 4 out of 5, or one step below the best possible rating. This stems mainly from having had vehicle finance for 2 years and not missing a payment on the car. Outside of that, my only credit was a cell-phone contract and a Telkom phone line that I had had for a couple of years.
My credit history was not spotless. The big thing was to not default on items that required a credit application. Having gone through a bad patch two years prior, I had defaulted on a few things along the way. So if you do go through a difficult financial period, it is not the end of the world, you must just work hard at repairing your credit score.
Things that you need to get a home loan
These are the only things that I needed to get a home loan.
- Good Credit Record
- 3-6 months bank statements
The payslip shows that you are actually employed. The 3-6 months bank statements confirms that you are getting money in your account monthly and that you can afford to repay a home loan. A good credit score shows that you are a reliable debtor and have a high likelihood of paying your home loan.
You don’t need to have a permanent job to get a home loan. The lenders’ main concern is assurance that you will be able to pay for your home loan. This is demonstrated through a good credit profile and an employment status that shows that you are receiving enough money each month to pay for the home loan over a period longer than a year.