A “self-employed mortgage” or “self-employed mortgage” is the same as a normal mortgage, but it may be more difficult to get your mortgage application approved if you are a self-employed person, a contractor, or classified as self employed.
In recent years, banks and other mortgage providers have taken extra care when deciding who to lend money to and how much they are willing to lend.
Even if you’re not self-employed, have a fixed income, and have a good credit rating, it can still be more difficult to get a mortgage than it was, say, 10 or so ago. 15 years old.
So if you are self-employed and looking for a mortgage, the banks are likely to be even more cautious about approving your application.
Mortgages for the self-employed are more difficult to obtain because banks consider self-employed to be riskier. Even if your income is regular, you will probably still need to take extra steps to prove that you can afford to pay off mortgage debt.
Can I get a mortgage if I am self-employed?
It can be more difficult to get a mortgage if you are self-employed, but it is still possible and you can increase your chances in a few small steps. Before applying for a self-employed mortgage, it is important to make sure that your credit rating is in good condition and that your proof of income shows that you are making a consistent amount of money over an extended period of time.
At best, a few independent mortgage providers will ask you to provide only 18 months of income statements, but most of the others will probably ask you for at least two years.
These additional checks are much more stringent than they would be for someone with a permanent full-time job. If you have a permanent full-time job, you may be asked to show only three months of income, for example.
In this guide, we explain what you need to do to properly prepare for a self-employed mortgage application and how the way you organize your business alongside your finances can impact the likelihood of being approved or rejected.
How to get a mortgage if you’re self-employed
Before the mortgage application system was reformed, self-employed people, as well as entrepreneurs and freelancers could “self-certify” a mortgage. This meant that you could certify your income yourself, instead of having to provide payslips and bank statements proving your income to the lender.
This was useful because it meant that if you were self-employed and made, say, £ 70,000 a year, but recorded a loss in the months between January and March, for example, you would still be able to justify obtaining a mortgage loan. because you were sure that you would still be able to earn the remainder of that salary in the remaining months of the year.
However, if the rest of the year didn’t go as you planned and you made less money – less than you could afford in monthly mortgage payments – then the bank might repossess your home.
Unfortunately nowadays, although banks are taking extra care to try to make sure this latter scenario does not happen, you must ask the lender to certify your income.
Will lenders give me a mortgage if I’ve only been self-employed for a year?
As mentioned earlier, most independent mortgage lenders want pay stubs and bank statements to go back two years, sometimes at a minimum.
On the one hand, you may have only been self-employed for a year and you will certainly have a hard time finding a mortgage, but on the other hand, if you have been self-employed for more than two years, any fluctuation in your income may be taken into account. for and hopefully better understood by the mortgage lender.
To make things easier, you should consider employing an accountant to handle your taxes at the end of each year. This will make it easier for you when applying for a self-employed mortgage, as you can easily get all the necessary documents showing your annual after-tax income.
Mortgage providers for freelance job applications often like to see proof of regular work, so if you’re a freelance writer or entrepreneur, any email asking you to work or proof of work lined up over the next few months. should improve your chances of being approved for a mortgage.
Naturally, as with any standard mortgage, a large deposit will count a lot in your favor, giving you access to some of the best mortgage deals for self-employed people. Try to have a down payment of at least 20% of the value of the property, but sometimes 10% will be enough if you have sufficient proof that your salary will be able to keep up with the monthly mortgage payments.
Having a down payment of around 40% will give you access to the best deals in the mortgage market, but as with any home loan application, having sufficient income and a good credit rating is often just as important. Read on to find out how to best prepare for your independent mortgage application.
Preparing to apply for a self-employed mortgage
There are three main ways to start your independent business: Sole Proprietorship, General Partnership, and Limited Liability Company.
No matter how your business operates, it will be easier to prepare your independent mortgage application if you have an accountant to provide you with two years of accounts showing the profits of your independent business and the dividends you received in as a shareholder.
If you are an individual entrepreneur, you can do your taxes yourself through the HMRC Self-Assessment website. You will likely receive a document from HMRC called SA302, which shows the amount of your income and the amount of tax owed. Keep it on hand for your mortgage application, as your lender may need to see it along with your proof of income.
If your independent business operates in partnership, you will need your accounts to clearly show how much of the business’s income is owned by you. It might be easier to have an accountant do this for you to minimize variances in your independent mortgage application.
Finally, if your independent business operates as a public limited company, then you will need to have proof of your income as a director of the company as well as proof of dividends paid to you as the majority shareholder of the company. Remember, you can always speak to an independent mortgage advisor for assistance in preparing your application.
Tips for self-employed mortgage applications
If you are self-employed, it usually makes more sense to separate your business from your personal affairs when applying for any type of loan. This means that if you have a credit card or loan that you have taken out for the sole purpose of using it for your freelance business, it must be in your business name, rather than yours personally.
This is a useful precaution to take in case you are late repaying your loan or encounter other difficulties with your business debts. This way, if you have been successful in building up a good credit rating for yourself personally, it will be protected if you have financial problems with your business.
On top of that, it’s worth remembering that as a self-employed business, your taxes are likely organized in such a way as to reduce the amount you pay at the end of the year. One way to do this is to give yourself a low salary and pay you the rest of the income in the form of a dividend or payout of company profits.
However, this combination of salaries may not be entirely clear to a mortgage lender because it may appear that you have low income, so having this explained in a document by an accountant should make the mortgage application process independent. a little less complicated.